A Chapter 13 bankruptcy filing is one of the most effective solutions for personal debt. Those who earn average or above-average income, a house at risk of foreclosure and/or personal resources that would be at risk of liquidation in a Chapter 7 filing may choose Chapter 13 bankruptcy as a way to resolve their insurmountable personal debts.
Chapter 13 bankruptcy requires multiple years of sustained efforts by a filer. However, when it is successful, a Chapter 13 bankruptcy may do less damage to someone’s credit report, and the discharge will come off of one’s credit report faster than it would after a Chapter 7 filing.
The process takes at least three years
The reason that Chapter 13 bankruptcy is a longer process than a Chapter 7 filing is because of the required repayment plan. Before the courts discharge someone’s remaining eligible debts, the filer will have to make a series of structured payments to their creditors. Typically, that means committing almost all of their disposable income every month toward their financial obligations. They make one payment to the trustee overseeing their repayment plan, and the trustee then distributes those funds amongst the creditors in accordance with the agreement negotiated at the creditor meeting.
The minimum duration of a Chapter 13 repayment plan is usually three years, although it could last up to five years in special cases. If someone experiences a significant change in their financial circumstances during the Chapter 13 repayment plan, they may have to go back to court and renegotiate the plan so that they don’t end up non-compliant and at risk of the courts dismissing their filing without discharging their debts.
Provided that someone is able to follow the repayment plan for three years (or longer, as required by the courts), a Chapter 13 bankruptcy can be an excellent way of restructuring one’s debts and eliminating eligible balances. Understanding the differences that set Chapter 13 bankruptcy apart from Chapter 7 proceedings may help those struggling financially make a more informed choice about the form of relief that is most likely to do them the most good.