Individuals who are struggling to pay their bills may decide to file for protection from creditors. Those who want to keep their Texas home or other property will want to file for Chapter 13 bankruptcy. In a Chapter 13 case, debtors make payments to creditors over a period of three or five years. Child support, back taxes and alimony payments are considered priority debts, which means that payments are applied toward those balances first.
Secured creditors such as auto or mortgage lenders are the next to be paid. Finally, unsecured creditors such as credit card or personal loan providers are paid if there is any money left over. Student loan debts generally cannot be discharged in a Chapter 13 case, but a debtor may still be required to make payments on those loans during the repayment period.
One of the downsides to Chapter 13 bankruptcy is that most or all of a debtor’s disposable income must be used to pay back creditors. Those who cannot fulfill the terms of a repayment plan risk having their cases dismissed. However, it may be the only option for those who have the means to repay their debt whether they are worried about keeping their property or not. Debtors must take a personal finance course before their cases can be dismissed.
Filing for Chapter 13 bankruptcy may provide a debtor with leverage to obtain new secured loan terms. This may allow an individual to retain ownership of a home and other assets after the repayment period ends. A homeowner may be allowed to sell his or her property after declaring bankruptcy and use the proceeds to pay off a mortgage. This may be preferable to a foreclosure if a debtor doesn’t want to risk losing equity in that property.