If you’re struggling to pay your debts, Chapter 13 bankruptcy could be a helpful solution. While it may be confused with Chapter 7, significant differences include avoiding liquidation, debt restructuring and keeping some assets. In Virginia, Chapter 13 may be more beneficial as it offers a structured approach to settling your obligations and getting back on track financially.
Chapter 13 restructuring
Chapter 13 bankruptcy involves submitting a payment plan that repays creditors a portion of debts owed. The plan requires the debtor to complete the payments over three to five years. Chapter 13 is often called wage earner’s bankruptcy because it could work best for people earning an income sufficient to cover the monthly payments.
Once someone files for Chapter 13 bankruptcy, all collection action ceases. Unsecured and even some secured debt becomes subject to full or partial discharge. Creditors could have a say in court about debt discharges, but the court has the final say.
The ability to avoid foreclosure may appeal to Chapter 13 filers the most. Filers will have to catch up on mortgage payments, which would be preferable to losing one’s house.
Avoiding liquidation
Chapter 7 refers to liquidation bankruptcy, which involves using non-exempt assets to pay off a percentage of one’s debt. Chapter 7 would remain on a credit report longer than Chapter 13 bankruptcy, and the debtor may lose more assets than in Chapter 13.
Both Chapter 7 and Chapter 13 have eligibility requirements, including statutory ones banning someone from filing for bankruptcy within 180 days of a previous bankruptcy dismissal. Filing for Chapter 7 also requires passing a means test. Those not passing the Chapter 7 means test may qualify for Chapter 13.