When you’re drowning in debt, you have to find a way out. But for many people, figuring out the best path forward is overwhelming and seemingly unachievable. As a result, they spend years, sometimes even decades, working multiple jobs and sacrificing their quality of life to try to climb their way out of the hole. All too often, too, these attempts are unsuccessful due to high interest rates, the expense of medical care and other life circumstances.
Fortunately, there may be a path to rid yourself of overwhelming debt while still allowing you to retain your assets. While a Chapter 7 bankruptcy requires you to sell many of your assets to satisfy your creditors as much as possible, Chapter 13 operates differently. Let’s take a closer look at what a Chapter 13 bankruptcy looks like so that you’re better positioned to determine if pursuing one is right for you.
Generally, a Chapter 13 bankruptcy operates similar to a consolidation loan. While there are limits as to the amount of secured and unsecured debt you can loop into your debt reorganization, those amounts are relatively high. But when you file your bankruptcy petition, you’ll have to propose a repayment plan. Creditors will then have an opportunity to object to the proposed plan, and those arguments will be heard in court. If the court approves your plan, then you’ll have three to five years to stick to it before you’ll be released from any remaining debt obligation.
Why should you consider a Chapter 13 bankruptcy?
While it’s true that a Chapter 13 bankruptcy will take longer to finalize when compared to a Chapter 7 case, there are multiple benefits to pursuing a Chapter 13 bankruptcy. These include:
- You can keep your assets: If you make good on your payment plan, then you’ll be able to keep all your assets. This can leave you on stronger financial footing once the process is finalized and alleviate any concerns you may have about repossession and foreclosure. Just keep in mind that creditors will try to seize your assets if you don’t abide by your payment plan.
- You can stop creditor harassment: Once you file your bankruptcy petition, creditors are not allowed to contact you. Instead, if creditors have concerns or questions, they need to contact the bankruptcy trustee. This can give you peace of mind while you focus on making good on your payment plan.
- Potential to reduce principal balances: In some instances, you may be able to reduce the principal balance of some loans, particularly auto loans, by having creditors agree to recoup the fair market value of the asset rather than the outstanding balance of the loan.
- Reclassification of second mortgages: You might be able to have second and third mortgages reclassified as unsecure debt, which can release you of any additional liens on your property, thereby giving you more financial flexibility.
- Simplification: Entering a repayment plan through Chapter 13 can simplify your debts. This can make it easier to get control of your finances and plan for the future.
If you are, then now is the time to consider your debt relief options. There are several out there, which is why it’s imperative that you research them and consider whether bankruptcy is right for you. If you have lingering questions about the best way to approach your debt relief, then now is the time to discuss the matter with your attorney. By doing so, you’ll hopefully find a path forward that truly protects your interests and winds up providing you with the financial freedom you deserve.