This type of
bankruptcy is probably the least appealing. It has all of the downsides of
a bankruptcy yet hardly any upsides. Simply put, a chapter 13 bankruptcy is
a "restructuring" of your debts with a scheduled payment plan that
fits your income. Typically this time range to pay off the debts is 3-5 years.
There is an option
to pay all or part of the debt, though, and the amount of repayment can range
from 10% to 100% depending on the debtor’s income and the composition
of amount owed. This code allows the debtor to restructure their payments
and set up a new payment schedule (usually 3-5 years) that is more manageable.
With a Chapter
13 Bankruptcy your unsecured debt may not
exceed $250,000 and secured debts $750,000.
Secured creditors get their money first to the extent of their secured interest
and priority. Non priority creditors may be partially paid- credit cards and
some taxes etc. In general, creditor approval is not required. Secured creditors
can object to the repayment plan however, the court can force acceptance because,
well, it's the government after all.
A Chapter 13
will halt any foreclosure or
other non-exempt bankruptcy items which would normally be liquidated under
the filing of a chapter 7. This also will halt the IRS's attempts to take
away all of your house and other items.
During this time
you have a "Parole Trustee Officer" who will control all of your
spending and credit related matters to make sure all your money is going where
it should.
The Downsides:
Your credit will be negative for the next 7-10 years from discharge. This
will cost thousands in increased interest charges since you will be considered
a high risk customer. There is also higher fees involved in the bankruptcy,
including a trustee management fee of 7-9% of the debt filed plus any court
and attorney fees.
Alternatives
to Bankruptcy: If you are going to choose this plan, there are other non-bankruptcy
programs which essentially do the same thing as a chapter 13. Debt
Negotiation is a service in which your debts can be settled for 30-50%
of what you owe without the 10 years of bad credit. Debt
Management is a way to roll all of your credit card debts into a lower
interest and more affordable monthly payment. Click on the links to the left
for more information.
