Individuals considering bankruptcy will usually file for either Chapter 7 or Chapter 13 bankruptcy unless they have a small business or run a family farm. Those with below-average income or few personal resources may choose Chapter 7 bankruptcy to benefit from a faster discharge and fewer repayment obligations.
Those with assets that would be vulnerable to liquidation in a Chapter 7 filing, who primarily need to save their homes from a risk of foreclosure and/or who have an above-average income may choose to file a Chapter 13 bankruptcy instead. It takes much longer to obtain a discharge in a Chapter 13 filing because the courts require a multi-year repayment plan before discharging the remaining balance on the unsecured debts someone reports when they file.
Payments last for three years or more
There will be a creditor meeting facilitated by the court-appointed trustee during which the person filing for bankruptcy and their creditors will review their obligations and income to negotiate a repayment plan. Such plans typically require that someone to devote almost all of their disposable income toward their monthly payments.
Instead of sending funds to each individual creditor every month, the person filing only sends one check directly to the trustee, and the trustee distributes the funds to the individual creditors as agreed in the payment plan. Repayment plans typically last for at least 36 months, although some may last for as long as 60 months. The average individual will make between three and five years of monthly payments before becoming eligible for discharge in a Chapter 13 filing.
People can adjust their payments
Sometimes, those trying to obtain a discharge through Chapter 13 bankruptcy will encounter additional financial hardship after their filing and creditor meeting. They might have a medical issue or a job loss that will affect their ability to keep making payments. Occasionally, it may be possible to rework the repayment plan to reflect someone’s changing economic circumstances. Missed payments could mean that someone is no longer eligible for discharge later, so following the right process is invaluable to those struggling with their repayment plans.
Seeking legal guidance to learn more about what happens in a Chapter 13 bankruptcy can help people evaluate the financial tools at their disposal when struggling with debt.