There are many reasons people fall into unsustainable debt: prolonged illness, unemployment, divorce or unexpected failure of a business. If you’ve reached the point where you don’t think you’ll ever be able to repay what you owe, Chapter 7 or Chapter 13 may be viable options. At Jeff Field & Associates, our knowledgeable bankruptcy attorneys are ready to explain the pros and cons of each so you can make the best decision for your circumstances.
Chapter 13 is a court-approved restructuring of debt. It involves committing to a payment plan that will last for three to five years, so you must have a reliable source of steady income. Chapter 13 does not require you to liquidate your assets, so if you’ve got a home or a high-value vehicle you want to keep, Chapter 13 may be a better option than Chapter 7.
Federal law sets debt limits for filing Chapter 13, which change every few years. If your secured debts exceed $1,257,850 or your unsecured debts exceed $419,275, you may not be able to file Chapter 13. However, there are debt reduction strategies you may be able to use to bring your debt under that level.
Chapter 13 is probably your only bankruptcy option if your income is above the median for households of your size, which prevents you from passing the means test to qualify for Chapter 7.
In a Chapter 13, you propose a debt repayment plan to the bankruptcy court, based on your monthly disposable income. If the court approves your plan, you must make monthly payments over a three to five-year period to the bankruptcy trustee, who disburses funds to your creditors. If, at the end of the plan period, you have met all payments, the court discharges your remaining eligible debt, such as medical bills, credit card balances and personal loans. A major benefit of Chapter 13 is that it forestalls mortgage foreclosure by allowing you to include arrears in the repayment plan while you restructure the ongoing debt.
If your home has depreciated in value and you owe more than it is worth, the home may not be sufficient collateral for a second mortgage. Chapter 13 can treat that second mortgage as an unsecured loan. The obligation can be partially paid off through your repayment plan, after which the bankruptcy court discharges the remaining amount due.
With Chapter 13, you will have to tighten your belt for a significant amount of time. But at least there is a certain date when you will be finished with your payment plan. Knowing there’s a light at the end of the tunnel should encourage you to stay the course.
Bankruptcy is a big step, and you should base your decision on reliable information, not the bankruptcy myths that are so prevalent. Start by looking at our FAQs about Chapter 13. Then, to get specific advice for your circumstances, speak to one of our experienced attorneys.
Jeff Field & Associates helps consumers throughout Georgia discharge eligible debt through Chapter 13 bankruptcy. To schedule a personal consultation, call 404-381-1278 or contact us online. We have offices in Scottdale, Gainesville, Marietta, Lawrenceville, Douglasville and Athens.
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