A declining economy, lack of job prospects and substantial financial obligations have left many individuals and families wondering how they will cope with their ever-increasing debt burden. For some, filing for bankruptcy may be the best solution to their problem.
The United States Bankruptcy Code provides consumers and businesses with several options or "chapters" for satisfying their debts. You may have heard of Chapter 7, Chapter 11 and Chapter 13 bankruptcy filings and wondered which option might be best suited to your situation. For most individual consumers who carry a large amount of secured and unsecured debts, filing under Chapter 13 is often the best option.
One of the main concerns that many individuals have concerning bankruptcy is whether they will be able to stay in their homes or save their property from foreclosure. One of the advantages of Chapter 13 bankruptcy is that, in most cases, individuals and families will be able to stay in their homes as long as they continue to make mortgage payments. Unfortunately, homes that have been sold at a foreclosure sale in accordance with applicable state laws usually may not be redeemed by filing for bankruptcy. Therefore, it is important for home owners to take action prior to a scheduled foreclosure sale if their goal is to stay in their home.
Once a debtor decides that Chapter 13 bankruptcy is the right option, he or she must file a petition with the court to start the proceedings. The filer will also need to provide financial information regarding all outstanding debts and sources of income. The court will then set up a payment schedule for the debtor based upon the information provided and the debtor will need to make scheduled payments in accordance with the court-issued plan for the next three to five years, depending upon the debtor's level of income. As long as the debtor is submitting scheduled payments to a court appointed trustee, creditors are not permitted to contact the debtor in an effort to collect on any outstanding debts during the repayment period.
After the three to five-year repayment period has passed, many of the debtor's obligations will be discharged or deemed satisfied. However, it is important for consumers to be aware that bankruptcy is not a magic pill that will solve all of their financial problems. Certain debts such as mortgages, taxes, child support payments and student loans may not be discharged through Chapter 13 bankruptcy proceedings. However, for many families, bankruptcy may allow them to stay in their homes and pave the way for a brighter financial future.
Chapter 13 also provides for flexibility. In certain situation, a non-filing consumer debt co-signor can be protected by a Chapter 13 bankruptcy. Moreover, higher income debtors can often regulate cash flow and Chapter 13 may be a means of persevering equity.