Chapter 13 Bankruptcy Explained In Plain English

Getting Chapter 13 bankruptcy explained to you is important if you are considering filing for bankruptcy, because there are many differences between Chapter 13 and other types of bankruptcy. A key difference is that Chapter 13 is one of the few ways to stop foreclosure on your house. At Judge Law Firm, we offer quality personal service to help you understand all of your options.

The main thing you need to understand about Chapter 13 compared to Chapter 7 is that Chapter 13 does not involve liquidation (sale) of your property and assets in order to pay creditors. Instead, you will enter into a payment plan for three to five years and money from those payments will be disbursed to your creditors.

The payment plan essentially subtracts certain expenses from your average monthly income and the remainder is your discretionary income. Under Chapter 13 bankruptcy, as explained here, all your discretionary income is used to pay your creditors. This payment plan will last for three to five years, depending on what the U.S. trustee and bankruptcy court decide. Because your debts are reorganized into a single payment plan, Chapter 13 is considered a "reorganization" or "consolidation" bankruptcy compared to "liquidation" or "fresh start" types of bankruptcy.

Advantages Of Chapter 13 Bankruptcy

One advantage to Chapter 13 bankruptcy, compared to some other types of bankruptcy, is it is one of the few ways to stop foreclosure on your home. Under Chapter 13, mortgage lenders must stop or not initiate foreclosure actions until the bankruptcy is settled. The payment plan will allow you to get caught up on delinquent mortgage payments over time. Likewise, most other creditors, including credit card companies, must stop all collection efforts, including phone calls demanding payments — which can take a lot of stress off of you.

Debt Discharge For Chapter 13 Bankruptcy Explained

In most cases, after three to five years, after your payment plan expires, all your unsecured debts will be discharged under Chapter 13 bankruptcy. Explained in simple terms, this means that creditors who do not have property as collateral (like your house for a mortgage or your car for a car loan) will not be able to collect any more money from you. However, secured creditors, like your mortgage and car loan, can still collect your collateral if you haven't gotten caught up on payments or paid the debt in full. So, although it's one of the ways to stop foreclosure, the foreclosure can be resumed if you don't keep up with your payments.

If you need Chapter 13 bankruptcy explained to you further, please click here to read our next article.

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