A Chapter 13 bankruptcy is a special form of bankruptcy for an individual. Unlike the common perception of bankruptcies, in which your debts are discharged and you begin with a fresh start, this type of bankruptcy is reserved for people who have more money going out than coming in and limited assets to liquidate. A Chapter 13 bankruptcy is often best for someone who is barely meeting their monthly commitment or is just now falling behind. A Chapter 13 bankruptcy will allow your debt to be reorganized and paid back. This is often a better option than other forms of debt repayment. The following are a few reasons why.
You can protect some of your assets
There are certain assets that are protected in a bankruptcy. One way to pay off your debts is through a debt settlement program. There are companies that will negotiate with your creditors for a lower amount. Unfortunately, you will need to have the money to pay off this lower amount. It could be attractive if you have enough assets to sell in order to pay off a lower amount of debt, but if this lower amount means tapping into the equity in your home, you need to consult with an attorney because your home is likely exempt in a bankruptcy.
You don't need to exchange unsecured debt to secured debt
One way to reorganize your debt is to consolidate it into a single payment after taking out a loan. The money for the loan goes to paying off all of your debts, then you simply make one payment each month for the loan. The amount of the single payment is usually lower than all of the payments for all of the debts you currently have. However, you need to have collateral for a loan like this. Of course, if you had the collateral, you could simply sell the assets, then pay off your debt. But the problem is that the equity in your home may be used as collateral. But a borrower is often exchanging unsecured debt with a consolidated loan secured by the equity in a home. This is usually a bad idea.
Creditors are forced to accept a bankruptcy
Although creditors can challenge a bankruptcy, they routinely do not. Creditors are not obligated to recognize any payment program outside of a bankruptcy court, so if they don't like what they are seeing, they can reject it. This can result in only some of your creditors agreeing to a payment plan. In addition, creditors can continue to charge interest on outstanding debt, but they can't do this in a bankruptcy.
If you are barely meeting your monthly commitment or are falling behind, you may want to reorganize your debts with a Chapter 13 bankruptcy. You can get a free consultation with a bankruptcy attorney.
To learn more, contact an attorney like C. Taylor Crockett, P.C.