In the United States, if someone is in a lot of debt, they may have the opportunity to file a Chapter 7 or Chapter 13 bankruptcy. Bankruptcy is a great option for debtors who simply can’t afford to pay off their debts. Bankruptcy gives debtors a fresh start by discharging their unsecured debts or by giving them up to five years to repay all or a portion of their debts through a repayment plan.
By filing bankruptcy, a debtor can either discard their debts, such as credit card debt and medical debt, or they can make a play to repay their debt over the life (3 to 5 years) of their repayment plan. Bankruptcy petitions can be filed individually, or spouses can file jointly. Sometimes, spouses time their bankruptcy strategically before or after a divorce.
Unless it’s a business bankruptcy, debtors usually file a Chapter 7 or Chapter 13 bankruptcy, but for the purposes of this post, we’re going to take a closer look at Chapter 13, what it is, and how it works.
Chapter 13 Bankruptcy Explained
“A chapter 13 bankruptcy is also called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years,” according to the United States Courts.
Here’s what you need to know:
- One of the main reasons why people file a Chapter 13 is to protect their home from foreclosure.
- If a debtor earns too much for a Chapter 7, he or she will have the option of filing a Chapter 13 instead.
- If the debtor earns less each month than the state’s median, the Chapter 13 play will be for three years.Likewise, if the debtor earns more than the state’s median, he or she will be placed on a five-year repayment plan.
- Chapter 13 protects third parties who co-signed on credit cards, auto loans, etc.
- The bankruptcy trustee makes the payments on behalf of the debtor, so the debtor does not have direct contact with creditors during the life of the repayment plan.
- To be eligible for a Chapter 13, the debtor’s unsecured debts must be less than $394,725 as of the date of this writing.
We hope this clears up some questions that you have about Chapter 13 bankruptcy. To learn more about the bankruptcy process, contact our firm to meet with a York Chapter 13 lawyer for free.