What does chapter 13 bankruptcy do for you?

On Behalf of | Jul 30, 2020 | bankruptcy

As a consumer, you usually have only two bankruptcy choices: Chapter 7 and Chapter 13. The latter is a reorganization strategy that involves a repayment plan over a period of three to five years.

People who make too much money to qualify for Chapter 7 bankruptcy but not enough to pay off their debts may benefit from filing Chapter 13. Another quality of Chapter 13 that you may appreciate is that it reorganizes your debt rather than liquidating your assets. This typically means that you can keep your possessions. However, there are limitations to Chapter 13 as well.

How does Chapter 13 reorganization work?

Chapter 13 reorganization is similar to debt consolidation. You will work out a three- to five-year repayment plan with your bankruptcy trustee. You will have a set payment amount that you must make to your trustee once a month.

Your trustee will distribute payments to your creditors, starting with the priority debts that you must repay. If you keep up with the payment plan for the set amount of time, you will go through a Chapter 13 discharge, after which you no longer have to worry about paying some of your debts.

What debts does Chapter 13 not discharge?

According to Experian, Chapter 13 bankruptcy does not discharge student loans or mortgage debts. In other words, these debts will remain even after the completion of the repayment period. However, Chapter 13 does discharge unsecured debts such as medical bills and credit card balances.

How do you qualify for Chapter 13?

Qualification for Chapter 13 depends on whether your income is regular. It also depends on the amounts you owe in secured and unsecured debt. Secured debts are those involving collateral, such as a mortgage or car loan. Your secured debt must be less than $1,184,200 and your unsecured debt must be less than $394,725 for you to qualify for Chapter 13.