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What is Chapter 13 Bankruptcy and How Can It Help Me?
When people face severe financial challenges, they often don’t know where to turn. Dealing with today’s tough economy can be overwhelming, but it is not the end of the road. There are ways people can deal with massive financial burdens and fight their way out of debt. Bankruptcy provides people in California with the opportunity for getting out of debt, depending on their particular circumstances and goals.
The U.S. Bankruptcy Code divides bankruptcy into different categories known as “chapters,” such as Chapter 7. Another part of the U.S. Bankruptcy Code, Chapter 13, which will be the focus of this article, offers unique solutions which are beneficial to debtors.
Chapter 13 is also known as “wage earner’s plan.” This type of bankruptcy allows debtors to repay their debts to creditors through a repayment or “reorganization” plan. Usually, the reorganization plan takes three to five years to complete. In Chapter 13, the debtor proposes a repayment plan to their creditors including monthly installments that must be paid. A Chapter 13 bankruptcy lawyer can help you review this plan.
One of the essential factors every Chapter 13 debtor must always be aware of is compliance. As a debtor, you must make sure every payment is made consistently and on time. Noncompliance, or failing to make regular payments, could lead to the dismissal of your Chapter 13 case. If you are unable to make consistent payments, and your case is dismissed, you could face dire financial consequences.
Third Party Protections
Chapter 13 provides financial protection to third parties, such as a spouse, who may otherwise be held liable for debts alongside the primary debtor. For instance, in Chapter 7, which is another common type of bankruptcy, co-signers can be held responsible for the debts of the person filing.
One of the most important benefits of Chapter 13 is potential foreclosure prevention. Once a debtor files a Chapter 13 bankruptcy petition, they generally receive the benefit of the “automatic stay.” The automatic stay is a judicial order that can pause foreclosure proceedings while the bankruptcy is active. However, the protections and benefits provided by a Chapter 13 bankruptcy, such as foreclosure prevention, are ultimately dependent upon timely, consistent payments. Keep mind, more than a promise of future repayment, a Chapter 13 bankruptcy repayment plan is a compromise made with creditors. Failure to follow the rules outlined in your repayment plan could result in the dismissal of your case, and potential creditor actions against you.
One of the major concerns when it comes to bankruptcy is how long it will stay in your credit history. A Chapter 13 bankruptcy will remain in your credit history for seven years, whereas a Chapter 7 bankruptcy will show up on your credit report for 10 years. In other words, Chapter 13 should come off your credit report three years before a Chapter 7.
While these are not the only benefits Californians can take advantage of when filing Chapter 13 bankruptcy, they provide insight into what debtors can expect from filing.
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