Bankruptcy for many is a last-ditch effort to get out of debt. When there are more bills in a month than income, it is impossible to pay everything due.
Bankruptcy is a way for a person who is in financial trouble to get a fresh start. It is a court process that results in settling some debts and discharging others. Chapter 13 is one type of bankruptcy that a person with regular income may want to consider.
Chapter 13 reorganizes debt
Some bankruptcy filings require the liquidation of assets to settle debts. Chapter 13 differs in that it restructures debts to allow for a gainfully employed person to make reasonable payments each month. The trustee goes through all debts and places them in order of importance. Those that are secure, such as car loans and mortgages, remain at the top of the priority list. Unsecured debts, such as credit cards, do not receive the same attention in bankruptcy. The trustee negotiates a realistic monthly payment.
Chapter 13 expires within a few years
One element of a Chapter 13 bankruptcy is that the time to make payments has an end. The court will order the payment plan to continue for three to five years. The length of time depends on the income bracket the person falls into. If the debtor makes all payments, the court may discharge the remaining debt at the end of the plan.
Bankruptcy is a choice that may change the course of a person’s life. A clean financial slate may help ease stress and eventually charts a new course forward.