Chapter 13 Bankruptcy can get a bad rap. Some fear that bankruptcy is the gateway to financial ruin when, in fact, it is an option that can help debtors regain control of their financial lives.
Chapter 13 does not wipe the slate clean of all debts. Instead, debtors propose a repayment plan to resolve all or part of their unsecured debt obligations over a three to five-year period. Anyone with regular income is eligible to apply for Chapter 13 bankruptcy. However, eligibility may be denied if secured and unsecured debts exceed specific amounts.
Understanding the following four benefits of Chapter 13 bankruptcy can help eliminate the fear of filing.
- Avoid home foreclosure. If a homeowner has received a foreclosure notice from the bank, Chapter 13 may temporarily stop a pending foreclosure. Automatically issued when a debtor files for bankruptcy, an automatic stay –a type of statutory protection – prohibits creditors from any attempts to collect debts or enforce liens.
- Keep your vehicle. Chapter 13 bankruptcy provides debtors the opportunity to keep their vehicle by consolidating the past due amount into the repayment plan. A lender cannot repossess a vehicle so long as the debtor maintains regular payments.
- Stop wage garnishment. The court-ordered automatic stay prevents any wage garnishment from creditors. However, a paycheck may still be subject to withholding for child support and alimony payments.
- Help with tax debt. In most cases, Chapter 13 does not eliminate tax obligations. However, the automatic stay prohibits the IRS from collecting tax debt. The Chapter 13 repayment plan absorbs any delinquent taxes.
Chapter 13 bankruptcy lets people restructure overwhelming debt under the protection of a federal court while providing for the opportunity to reclaim financial freedom.