Chapter 13 bankruptcy is not what most people usually think of when they hear the term "going bankrupt." For most, the idea of bankruptcy is actually a Chapter 7 bankruptcy, which results in the liquidation of at least some assets.
Chapter 13 bankruptcy is completely different, and it's a type of bankruptcy you may be able to qualify for even if you have an income that is too high to qualify for Chapter 7 bankruptcy. Known as a wage-earner's plan, Chapter 13 bankruptcy allows you to pay a single payment each month to cover your debts. After three to five years of on-time payments, any remaining debts are then discharged.
How do you know if you qualify for a three- or five-year plan?
If your current income is less than the state median, then you can qualify for the plan on a three-year basis. On the other hand, if your monthly income is higher than the state median, you'll need to use the five-year plan in most cases.
Can a Chapter 13 bankruptcy take more than five years?
No. No plan may take longer than five years. During the time you're involved in the plan, no creditor can participate in collection efforts, either.
What makes Chapter 13 bankruptcy such as good kind of bankruptcy to use?
There are many benefits to consider, but one of the most significant is that it can help you save your home from being foreclosed upon. When you file, you immediately stop the foreclosure proceedings and can potentially pay back missed mortgage payments over the course of the three- or five-year plan.
When you enter into Chapter 13 bankruptcy, it allows you to reschedule many of your secured debts and to extend them through the life of the plan. For some people, this will lower payments and help them get back on track financially.
Another great thing about bankruptcy is that you don't need to have contact with your creditors. You won't have harassing phone calls or be asked to negotiate with them directly. Chapter 13 bankruptcy works like a consolidation loan, so you send your payment to a trustee and allow them to have all the interactions with the creditors you owe.
If you think that Chapter 13 bankruptcy may be right for you, it is a good idea to learn more about it before you file. An attorney can tell you more about how one works and the benefits that you'll receive when you enter into bankruptcy protection.