Here, learn about Chapter 13 bankruptcy, which is a legal process that lets people pay off their debt through a 3- to 5-year plan. It may stay on your credit report for less time than a Chapter 7. But some types of debt, and some creditors' rights, can't be eliminated.
Bankruptcy is a legal proceeding where a person who can’t keep up with his or her bills can get a fresh start. Filing bankruptcy immediately stops (called “automatic stay”) all of your creditors from seeking to collect debts from you until your debts are sorted out.
Unlike a Chapter 7, where most debts are canceled, a Chapter 13 bankruptcy requires the debtor to repay some or all of the debt according to a repayment plan. The repayment process can last three to five years. To qualify, the debtor must have a regular source of income to make repayments. Income includes wages, retirement, social security, and disability benefits.
In a Chapter 13, a bankruptcy trustee is appointed to investigate your finances, make sure your plan is fair, address your creditor’s claims, and pay down your debts according to the plan. Your payments go to the trustee, who withholds 10% as a fee and sends the rest to your creditors. At the end of a Chapter 13 bankruptcy, the balance of unsecured debts (such as credit cards) will be discharged.
No. The means test is an eligibility screening tool for people who want to file for Chapter 7. The test is not required for Chapter 13, but many people who do not pass the Chapter 7 means test file for Chapter 13 instead.
A completed Chapter 13 bankruptcy will get removed faster from your credit report than a Chapter 7. A Chapter 7 will appear on your credit report for about ten years, while a Chapter 13 will appear on your credit report for seven years from the date the case was filed. For example, if you complete a five-year Chapter 13 plan, it will stay on your credit report for only two more years from the discharge date. A negative account remains on your credit report for seven and a half years. Check your credit report for free by going to www.annualcreditreport.com.
A Chapter 13 bankruptcy can:
A Chapter 13 bankruptcy cannot:
Maybe. Read Alternatives to Bankruptcy.
Talk to a lawyer before deciding how to move forward. Doing nothing might be an option if you are judgment-proof. If your property and income are exempt from creditor’s claims by law, then you have nothing the creditors can take from you. With the exception of past due child support, you can’t be put in jail for failing to pay a debt. If you are not judgment-proof, you can negotiate a payment agreement with your creditors before filing for bankruptcy.