If you are struggling to pay your debts, you might consider Chapter 13 bankruptcy. You may already know that unlike Chapter 7 bankruptcy, you get to keep your assets. However, it might surprise you to know that filing for Chapter 13 may also reduce the total amount of debt you have to repay.
There are three categories of debt in bankruptcy
When you file a petition for Chapter 13 bankruptcy, you need to show how you intend to repay the money you owe. Your debt will be separated in to three categories: unsecured, secured and priority:
- Unsecured debt: Unsecured debt includes credit cards and any unsecured loans. The bankruptcy court may elect to reduce some of these debts. It could save you a considerable amount of money.
- Secured debt: Mortgage and car loans both fall in to this category. The lender has the security of seizing your property if you fail to pay. However, lenders may decide to cut you a deal. They may lower your interest rate or reduce the total left to pay.
- Priority debt: These include taxes and outstanding child support payments. You must pay these debts in full regardless of your situation.
Chapter 13 bankruptcy can be a good option if you still have an income and believe you can eventually pay back what you borrowed. It allows time to get back on track with payments. It can also be a good option for lenders. They will appreciate that you intend to pay what you owe and know they could end up with less if you file for Chapter 7. That is why often lenders will strike you a deal to reduce the total amount you owe them. An experienced attorney can provide valuable guidance based on your individual situation.