Changes made to the bankruptcy laws in 2005 made it more difficult for some people to qualify for Chapter 7 bankruptcy. For those that do not qualify for debt elimination, they can absolve their debts through a Chapter 13 repayment plan. There are some key differences in the two types of personal bankruptcy and knowing what to expect is the first step towards obtaining a financial solid future.
What Debts Can Be Resolved?
Chapter 13 bankruptcy can allow you to satisfy your debts over a period of three to five years. Depending on the type of debt owed, you may not be required to repay the full amount of the debt. Unsecured debts such as credit cards and medical bills may be negotiated and you could end up paying anywhere between 1-100% of the actual debt amount owed.
In secured debts, such as car loans and mortgages, you will be required to repay 100% of the debt owed if you want to retain possession of the property. Unpaid taxes and past due child or spousal support payments must also be repaid in full in bankruptcy.
The Repayment Plan
Once you file your bankruptcy petition, a repayment plan will be drafted that outlines the amount you will pay your creditors each month. This amount is calculated based on your level of income and the amount of debts owed. The bankruptcy court must approve the plan and copy will be provided to your creditors. Once the plan is approved by the court, the creditors cannot attempt to collect on the debt and must accept payments as outlined in the plan.
Failing to make the required payments as outlined by the plan can result in the dismissal of your case. Hiring a bankruptcy attorney to assist you in the development and completion of the Chapter 13 plan can greatly increase your chances of successfully discharging your debts.