If you find yourself drowning in debt payments and cannot make consistent progress on your debt, a chapter 13 bankruptcy may be right for you. Before making the decision to file for chapter 13 bankruptcy, make sure you understand the process and what it entails.
1. There is No Means Test
Unlike chapter 7 bankruptcy, there is no means test to file for chapter 13 bankruptcy. The reason there is no means test for this type of bankruptcy is because it is automatically assumed that debtors will repay a portion of their debts.
In chapter 7 bankruptcy, debts are dismissed outright after assets are liquidated. As a result, income and assets must meet certain qualifications.
2. Your Repayment Period Lasts Up to Five Years
The ultimate repayment period for chapter 13 bankruptcy varies based on your income, household expenses, and amount of debt. Your repayment period may be as short as three years or as long as five years.
If you are given a three year repayment period, you may ask that the period be extended to five years. Doing so decreases your monthly payment, giving you a bit more breathing room in your budget for unexpected expenses.
3. You Get to Keep Your Assets
Since you do repay a portion of your debts in a chapter 13 bankruptcy, you get to keep your assets, such as your vehicles, home, savings accounts, and other items of value (personal recreation vehicles, jewelry, electronics, etc.).
Conversely, assets that do not meet the rules for exemption are usually liquidated in a chapter 7 bankruptcy.
4. You Can Modify the Plan
If your financial situation changes during your chapter 13 plan, you have the ability to modify the plan. How you modify the plan depends on whether you are suffering from a short term or long term hardship. For a short term hardship, you may get to take a moratorium on your plan for up to 90 days. Short term hardships would include temporary unemployment and unexpected expenses.
In cases of long term hardship, you can return to court and ask that your payments be stretched out over the maximum five year period (if you aren't on the five year plan). Long term hardships include a permanent reduction in income or significant change in household expenses.
When your credit card balances keep increasing, rather than decreasing, it may be time to consider filing for chapter 13 bankruptcy. Chapter 13 bankruptcy makes it more affordable for you to repay your debt, enabling you to begin a path towards financial freedom. For more information, contact companies like Geranios Law PLLC.