Chapter 13 Bankruptcy Helps You Become Debt-Free

A Debt Solution That Clears Money Problems with Legal Protection

May 13, 2009

Consumers struggling with money problems should consider chapter 13 bankruptcy. This debt solution can help a consumer to restructure their credit and become debt-free.

Filing for chapter 13 bankruptcy can help a consumer to reorganize their liabilities and become debt-free within 3 to 5 years. It is suitable for a consumer with serious money problems who is unable to pursue chapter 7 bankruptcy because their income is too high or they have non-exempt assets that they wish to protect. It remains the principle alternative debt solution to a debt settlement plan.

Why Chapter 7 Bankruptcy is not Always Chosen

Whilst a debtor that declares chapter 7 bankruptcy will be expected to relinquish any non-exempt assets, such as a second home, this is not necessarily the case with chapter 13 bankruptcy. Other consumers earn more than the median income for their state which means they are ineligible.

Before proceeding with chapter 13 bankruptcy, the court expects a debtor to provide evidence that payment is affordable. Should income be irregular or too low, it may be rejected. The majority of people filing have received legal advice so very few applications are thrown out.

Debts will be categorised according to importance. Priority debts, such as child support, alimony and taxes must be paid in full. Secured debts, including the mortgage and car loan, must also be paid along with any outstanding arrears. Any residual income will go towards paying off unsecured debts. It isn't necessary to pay the full amount owed, just provide what can be afforded.

The insolvent will now make payments based on any available disposable income for a 3 to 5 year period. The remainder is written-off and the consumer will be debt-free.

When is Chapter 13 Bankruptcy an Inappropriate Debt Solution?

Filing for bankruptcy is not an appropriate debt solution for those with an inadequate disposable income. As already alluded to, the insolvent will need to prove to the court that a monthly payment is both affordable and sustainable. Others aren't eligible because their cumulative debt exceeds legislative limits. Secured and unsecured debts must not exceed $1,010,650 and $336,900, respectively.

Provided that the eligibility requirements are met, chapter 13 bankruptcy is an excellent way for consumers to become debt-free. Individuals with minimal non-exempt assets or on a low income will find that chapter 7 bankruptcy is a better debt solution. Money problems can also be overcome with a debt settlement plan.

Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.

The copyright of the article Chapter 13 Bankruptcy Helps You Become Debt-Free in Bankruptcy is owned by Asa Ghaffar. Permission to republish Chapter 13 Bankruptcy Helps You Become Debt-Free in print or online must be granted by the author in writing.