What Happens When You File for Chapter 13 Bankruptcy?

In a chapter 13 bankruptcy, your attorney will work out a monthly payment plan based on your average monthly disposable income. This is the amount of money you have left over every month after taking into account your allowable monthly expenses including rent/mortgage, transportation, clothes, food, etc. This number is then made into a monthly payment from which the bankruptcy trustee will distribute funds to your creditors.

For many people with debt that costs thousands of dollars a month, having a monthly payment of a few hundred dollars instead means that they can stop struggling with debt and creditor harassment and stress.

Secured vs. Unsecured Debt

Chapter 13 is an excellent way to get a handle on debt, because it pays your secured creditors first (mortgage, car payment), and then, if there is enough left over, some of your unsecured debts like credit cards, medical bills and personal loans. This means that your most important bills are paid first, and most of your unsecured debts will be discharged, meaning much of the debt will be erased.

For people who have become burdened with costly credit card debt or medical bills, chapter 13 can provide a solution to minimize or erase those debts.

Will I Keep All My Property?

Unlike a traditional chapter 7 bankruptcy, no property will be lost, so long as your monthly payment can afford to cover it. When you don't have to worry about making credit card payments or dealing with medical bills, it's much easier to make a mortgage payment and monthly car payments.

For Homeowners

For homeowners who have become underwater, or even facing foreclosure, a chapter 13 bankruptcy can help them keep their homes. Several options, including removing a second mortgage and forcing a loan modification can make it more realistic to keep a house that has diminished in value.

Impact on Credit

One of the benefits of a chapter 13 bankruptcy over a chapter 7 bankruptcy is that the impact on your credit score is not as severe, because you are making monthly payments and attempting to repy some debt if possible.

Talk to a Bankruptcy Lawyer if you're thinking about using bankruptcy as a way to start over, get rid of debt, keep your property and get a clean slate.