When Does Filing a Chapter 13 Bankruptcy Petition Make Sense?
In Massachusetts, filing for Chapter 13 makes sense for certain individuals, and not for others. If your financial circumstances fit the mold for the ideal Chapter 13 bankruptcy filer, then this may be the best bankruptcy option for you. On the positive side of the ledger, Chapter 13 allows you to discharge most of your debts and keep many of your assets by the end of the 3–5-year repayment process. On the other hand, you will have to stick to the 3–5-year repayment plan religiously.
Minimum Chapter 13 Qualifications
To qualify for chapter 13 you must be able to demonstrate to the court that you have a regular income. Regular income, in this case, means that you have an uninterrupted source of income (that you are paid on a consistent basis in a steady amount). Also, to qualify for chapter 13 bankruptcy, you must have roughly under $400000 in unsecured debt and under one million dollars in secured debt. Note: these are rough figures – for current limits, please contact your attorney. If you meet these three qualifications then chapter 13 may be a good option for you.
How Does Chapter 13 Work?
The bankruptcy court allows you to set up a repayment plan to pay a portion the amount of secured and unsecured debt that you owe to your creditors over a period of 3 to 5 years. The great thing about chapter 13 is that you will not be required to pay the full amount of the debt that you acquired before filing for bankruptcy. Instead, you will have to pay a portion of those debts. The bankruptcy court will examine your finances closely to determine your ability to maintain consistent involvement in this repayment plan over the 3 to 5 years. Once you successfully complete the repayment plan, your debts will be discharged and you will have the benefit of retaining many of your assets.
Who is Chapter 13 Best Suited for?
Chapter 13 is the right choice for someone with significant assets that they want to keep; like a home, vehicles and similar assets. The plan set up under Chapter 13 is allows you to keep these assets as long as you stay current with your mortgage payments or other payments going forward.
Who is Chapter 13 Bankruptcy Not Right For?
Chapter 13 is generally not a good choice for someone who has a large amount of unsecured debt and few assets that they wish to keep. If you fall into this category, it would not make sense to file a chapter 13 bankruptcy plan because you would end up paying some of these unsecured creditors under the plan, whereas, if you had filed under a Chapter 7 bankruptcy the entire amount owed to unsecured creditors would likely be liquidated or discharged.
If Chapter 13 is a Repayment Plan, Why Not Enter a Repayment Plan with a Credit Consolidation Company?
If you wondered when reading about chapter 13 why you should bother going through all the trouble of having a bankruptcy on your credit report when you could just enter a repayment plan with a credit consolidation company and avoid any further harm to your credit…you would be asking a very good question. Essentially, you would be correct that entering a repayment plan with a credit consolidation or repair company would be one way to allow you to repay your creditors and keep your assets. There is one major problem though with this method. The problem is that if you are having difficulty making your payments now on mortgages and other property that is secured by collateral and if you anticipate that you will continue to have problems because of changes in income or health problems, entering a repayment plan does not protect you from your creditors.
What Do You Mean That a Credit Repair or Consolidation Company Doesn’t Protect You from Your Creditors?
The one thing that Chapter 13 bankruptcy offers that a credit repair company cannot offer is the automatic stay. Under federal law, when you file a petition in bankruptcy and it is accepted by the court, an automatic stay places a hold on all of your creditors. This means that they cannot continue or begin any credit collection activity against you, this includes bringing you to court over a debt, calling you on the phone, sending you letters, or pursuing you in any other way. The automatic stay offered through the bankruptcy process means that a bank may not be able to repossess your home through foreclosure, for example, because the decision to liquidate your home to pay off debts would be left up to the bankruptcy trustee and several other financial circumstances that are beyond the scope of this article.
Wrapping up, chapter 13 is the optimum bankruptcy choice for a Massachusetts resident who has significant assets that they wish to keep, and has the ability to make regular payments, buffered by their further ability to demonstrate a consistent income over a 3 to 5 year period.
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