Chapter 13: Keep your things, pay your creditors

Chapter 13 bankruptcy is a more desirable solution if the debtor has the disposable income to do so. Quite frankly the filing of Chapter 7 may require what is called a “means test” if the debtor’s income is larger than median in the debtor’s filing area. If this test says the debtor can afford to pay back some of their debts, his/her filing will automatically switch to a Chapter 13. So it’s best to determine that early.

Chapter 13 bankruptcy only requires that the debtor has to repay some, not all, of his/her debts. After all, if the debtor could afford the full repayment they generally would not be filing bankruptcy anyway, right?  The Chapter 13 petition is practically the same as the Chapter 7 except that it is a debt adjustment for those with a standard income.

To qualify, the debtor’s unsecured debt cannot exceed $269,250 and the debtor’s secured debts must be smaller than the amount of $807,750 and the plan is set for between 3-5 years. Also, the trustee’s job is easier since he/she must only collect the payments and disburse them to the creditors. The debtors negative accounts are discharged (the court releases a written statement to debtor stating that his/her debts have been fulfilled) and he/she can begin rebuilding their credit.

To sum it up, the pros seem clear. However, as with anything there are cons and the debtor has to correctly evaluate his/her position and choose what’s best for them. As for credit, sure bankruptcy has a negative effect but in today’s society car dealers offer loans and assistance to those with bankruptcies. Not to mention secured credit cards! The road to financial recovery is a very attainable goal after bankruptcy and should not be regarded as financial death but a new and reformed financial security!

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