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Chapter 13 bankruptcy can help people retain various properties

On Behalf of | Oct 16, 2023 | Bankruptcy |

Job loss, medical emergencies, divorce and overall financial struggles can leave many New York residents wondering how they will make ends meet. When they have fallen behind on their bills, the endless stream of phone calls from creditors can be enormously stressful. For those who own a home and other properties they do not want to lose, there might be a reluctance to consider bankruptcy.

There are many misconceptions about bankruptcy. Often, people tend to automatically think they will lose everything. With a Chapter 7 filing, their property will be liquidated to repay creditors. If they own a home, they will likely lose it. However, Chapter 13 allows people to keep properties like a home as they get back into a better financial situation. Knowing the details of Chapter 13 and how it can be beneficial is critical before simply dismissing the idea.

Chapter 13 may be preferable for certain people

A Chapter 13 filing functions similarly to a consolidation loan. People who have a job and regular income will have a repayment plan over three or five years. Generally, it will be significantly less than they would have been paying if they continued with their mortgage payments, auto payments, medical debt, credit cards and any other debts they accrued.

The primary goal for people who file for Chapter 13 is to keep their valuable property. Whereas anything of value would be part of a Chapter 7 liquidation, Chapter 13 is different in that the creditors are paid back over those three or five years. The debtor will pay a trustee each month and the trustee will distribute the funds to creditors.

Chapter 13 is also useful when a person who might otherwise consider Chapter 7 earns too much money and does not qualify based on the means test. The debtor will craft a repayment plan that the court must approve before it goes forward. Over time, the debtor can get current on their mortgage, clear other debts and rebuild their credit. It also eliminates the concern about wage garnishment, lawsuits and other strategies creditors might try to recover payment.

Chapter 13 is something to consider to clear debt

Many people have negative ideas about bankruptcy. This is largely due to not fully understanding how much it can help them get out of hefty debt. The person’s financial situation needs to be professionally assessed before deciding whether Chapter 13 or Chapter 7 is the better option. When thinking about bankruptcy, having all the proper information is one of the most important factors to making an informed determination.