In contrast to Chapter 7, which offers immediate debt relief through liquidation, Chapter 13 bankruptcy gives debtors the opportunity to progressively repay debt through a court-approved repayment plan. In most cases, this type of bankruptcy will permit a financial reorganization in lieu of more drastic solutions such as liquidation or foreclosure.
Why Opt for Chapter 13?
The US Bankruptcy Code, which was most recently amended by the 1978 Bankruptcy Reform Act, permits several different types of bankruptcies, including Chapter 7 (which deals with liquidation or straight bankruptcy), Chapter 13 (reorganization), Chapter 12 (which deals with family farmer reorganization), and Chapter 11 (involuntary reorganization).
As stated previously, Chapter 13 is intended to encompass the voluntary reorganization of assets to eliminate debt. The advantages include the ability to promptly stop a foreclosure and establishing guidelines for debt repayment through the court. Additionally, asset collateral can be established, allowing various assets to be used to repay the debt that prompted the bankruptcy filing.
In Chapter 13, non-filing co-debtors are also exempt from collection, allowing the filer to protect business associates, family members, etc. Those who file for this version instead of Chapter 7 are also legally guaranteed to receive the same debt protection as those who file for Chapter 7.
Escape from Chapter 13
As required by the Fair Credit Reporting Act of 1970, a trace of a Chapter 13 bankruptcy filing will remain on the filer's personal credit report for up to ten years. However, this will permit new debt or credit loans, as well as credit cards and auto loans. Nonetheless, the debtor is ineligible for new credit during the duration of the bankruptcy.
The true objective of some Chapter 13 debtors is to pay off their plan early. With a structured plan, you will know what you must pay off and when; however, paying a little extra into the plan will also help you emerge from bankruptcy faster and on your own terms. However, you will not be able to exit bankruptcy early unless your debts to creditors are paid in full. Most filings permit a portion of the debt to be discharged; therefore, you may want to adhere to the plan and simply save to ensure timely payments.""
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