Filing for Chapter 13 bankruptcy can help you restructure your debt while keeping your assets. It allows you to create a repayment plan based on your income, typically lasting three to five years. Unlike Chapter 7, which liquidates assets, Chapter 13 helps you repay debts without losing property.
Eligibility requirements
To qualify for Chapter 13, you must have a regular income and unsecured debts below a certain limit. Secured debts, like mortgages or car loans, must also be under a specific threshold. The court reviews your income, expenses, and debts to determine if you can stick to a repayment plan. If your income is too low, you may need to consider other debt-relief options.
The repayment plan
Your repayment plan consolidates debts into a single monthly payment. The amount is based on disposable income after necessary expenses. Some debts, like child support and taxes, must be paid in full. Others, such as credit card debt, may only require partial repayment. After successfully completing the plan, remaining unsecured debts may be discharged.
The automatic stay
When you file for Chapter 13, an automatic stay goes into effect. This prevents creditors from pursuing collections, including wage garnishments, foreclosures, and repossessions. The stay lasts as long as you adhere to the repayment plan. If you miss payments, creditors may request permission to resume collection efforts.
What happens after completion?
After finishing the repayment plan, eligible debts are discharged, meaning you no longer owe them. This gives you a fresh financial start. However, some debts, like student loans and certain taxes, usually remain.
Successfully completing Chapter 13 can improve your credit over time by showing consistent payments.