While most people tend to think of Chapter 7 when considering bankruptcy, the truth is not everyone will qualify. In general, it is much easier to qualify for Chapter 13 because there is less income restrictions. There are fewer eligibility rules for Chapter 13, but also very different risks and benefits.
The Process
To qualify for Chapter 13 you generally must meet two requirements. First, you must be an filing as an individual, or married couple, with regular income. This basically means that you cannot be looking to file on business or foreign debts. You must also be filing on debts that meet the following requirements: (a) unsecured debts must not exceed $360,475 and (b) secured debts must not exceed $1,081,400.
The goal of Chapter 13 is debt reorganization through a repayment plan, so if you are looking for complete debt elimination without payment you have filed the wrong case. When developing a debt repayment plan through Chapter 13 you must first provide the court with a full list of creditors. These creditors get prioritized in terms of how much and when they will get repaid through the plan. The court will also consider your income and assets to determine your ability to maintain the repayment plan.
Once the plan is established and approved by the courts, your creditors will be notified of the plan's details. Your creditors must adhere to this payment plan and cannot, legally, collect on the debt outside of the plan. Your creditors will get paid in order of priority, which is: (1) priority claims such as taxes and domestic support payments, (2) secured claims such as mortgages or car loans, and (3) unsecured claims such as credit cards, medical bills or other unsecured debts.
The Perks
The benefits of Chapter 13 are two-fold. First, your credit will be better protected from damage since you are repaying your debts rather than having them written off. Your chances at future credit lines will be more secure, as potential lenders look more favorably on debt repayment over debt elimination. Second, your assets are less likely to be seized and liquidated by creditors. This is especially true of secured debts like mortgages or car loans. In order to keep possession of such items, most bankruptcy courts will require debt repayment through a Chapter 13 case. These assets are at greater risk when filing a Chapter 7 case.
The Drawbacks
There is really only one drawback with a Chapter 13 filing, debt repayment. Some people view the requirement of repaying their debts to be more of a burden than obtaining a debt elimination through Chapter 7. If you cannot afford to repay your debts, chances are you qualify for Chapter 7 anyway and would not be forced into a debt repayment plan that causes further financial hardship.
The Process
To qualify for Chapter 13 you generally must meet two requirements. First, you must be an filing as an individual, or married couple, with regular income. This basically means that you cannot be looking to file on business or foreign debts. You must also be filing on debts that meet the following requirements: (a) unsecured debts must not exceed $360,475 and (b) secured debts must not exceed $1,081,400.
The goal of Chapter 13 is debt reorganization through a repayment plan, so if you are looking for complete debt elimination without payment you have filed the wrong case. When developing a debt repayment plan through Chapter 13 you must first provide the court with a full list of creditors. These creditors get prioritized in terms of how much and when they will get repaid through the plan. The court will also consider your income and assets to determine your ability to maintain the repayment plan.
Once the plan is established and approved by the courts, your creditors will be notified of the plan's details. Your creditors must adhere to this payment plan and cannot, legally, collect on the debt outside of the plan. Your creditors will get paid in order of priority, which is: (1) priority claims such as taxes and domestic support payments, (2) secured claims such as mortgages or car loans, and (3) unsecured claims such as credit cards, medical bills or other unsecured debts.
The Perks
The benefits of Chapter 13 are two-fold. First, your credit will be better protected from damage since you are repaying your debts rather than having them written off. Your chances at future credit lines will be more secure, as potential lenders look more favorably on debt repayment over debt elimination. Second, your assets are less likely to be seized and liquidated by creditors. This is especially true of secured debts like mortgages or car loans. In order to keep possession of such items, most bankruptcy courts will require debt repayment through a Chapter 13 case. These assets are at greater risk when filing a Chapter 7 case.
The Drawbacks
There is really only one drawback with a Chapter 13 filing, debt repayment. Some people view the requirement of repaying their debts to be more of a burden than obtaining a debt elimination through Chapter 7. If you cannot afford to repay your debts, chances are you qualify for Chapter 7 anyway and would not be forced into a debt repayment plan that causes further financial hardship.
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