Guide to Chapter 13 Bankruptcy: How to Come Out Alive on the Other Side

Bankruptcy button on virtual screen.
Bankruptcy is by no means a death — or debt — sentence. Although held in the general conciseness to mean that a person has already scraped the bottom of the barrel, that is not always necessarily true. In fact, bankruptcy is a useful tool available to ensure that people do not become completely undone by their debt. In 2013, a total of 1,071,932 bankruptcies were filed in the U.S., and for many of the people that filed, it was a lifesaver — a chance to wipe the slate clean. Indeed, bankruptcies resulting from unpaid medical bills affected about 2 million people in the U.S. during 2013.

Not all bankruptcies are the same. The type you end up filing for depends on your personal debt situation and outlook. Let’s take a look at Chapter 13 bankruptcy, of which there were a total of 333,626 cases filed in 2013, and see if it might be right for you.

Chapter 13 Bankruptcy Explained
Chapter 13 bankruptcy is also known as a “wage earner’s plan.” This is because it enables individuals with regular incomes to develop a plan in order to repay all or part of their debts. This is opposed to Chapter 7 bankruptcy, which usually wipes away some of a person’s debts.

How It Works
The debtor proposes a repayment plan to make installed payments to their creditors over the course of three to five years. Typically, if a debtor’s monthly income is less than the state median, the plan will be for three years.

As with any type of bankruptcy filing, the first step is filing a petition in the local bankruptcy court. Normally, a debtor must file a schedule of assets a liabilities, current incomes and expenditures, and a statement of financial affairs.

The biggest advantage of Chapter 13 bankruptcy over Chapter 7 is that the individuals filing under Chapter 13 have the chance to stop foreclosure proceedings, and even cure delinquent mortgage payments over time. Another advantage is that secured debts may be rescheduled, which could lower the monthly payments. And lastly, debtors enjoy the fact that a Chapter 13 plan acts like a consolidation loan — they make monthly payments to a bankruptcy trustee, and never deal directly with creditors.

No matter what kind of bankruptcy you file, it’s important to seek help when filing bankruptcy so that you can avoid accruing more debt during a process that should get you out of debt. A bankruptcy attorney can properly guide you through the process.