Friday, May 25, 2012
Considering personal bankrupcty: Is Chapter 13 Right for You?
There are two ways that a person can file for personal bankruptcy: Chapter 7 and Chapter 13. Most people have heard of Chapter 7 bankruptcy, but Chapter 13 is often more rare. However there are situations when Chapter 13 is appropriate.
There are many differences between Chapter 7 and Chapter 13, but the main difference between Chapter 13 and Chapter 7 is Chapter 13 often allows the person filing for bankruptcy to keep certain assets that would otherwise be lost under the Chapter 7 rules. You can often keep your home and your car under either plan as long as your equity does not exceed certain limits. However, many of the discretionary items are treated differently. For example, you may be allowed to retain rental properties, antique collections and other discretionary assets under Chapter 13 which you might otherwise lose under Chapter 7.
Generally, Chapter 13 is commonly used when one has significant equity in a home or other property they want to keep. It's best for individuals with regular income and can pay their living expenses, but have some trouble with keeping up with payments on other debts. Chapter 13 protects individuals from the collection efforts of creditors and permits those who are filing to retain their real estate and personal property. It also provides means so that the person can pay his or her debts through reduced payments.
A trustee works for both parties and will usually come up with a three to five year payment plan which offers to pay off all or part of the debts owed. The trustee will also calculate how much the debtor can afford to pay each month which is that amount above necessary living expenses. Debtors must have a regular income and have at least some disposable income in order to make this work. It is the disposable income that is used to pay back the debts.
Two major problems with Chapter 13 is that the person filing must have a steady income and some disposable cash. For many people, they simply do not have that. If they had it, they might not be in bankruptcy in the first place. The second issue is that the person filing Chapter 13 will have to pay back more of the debt owed than those seeking protection under Chapter 7.
But there are also major advantages to Chapter 13 as well. A person filing under Chapter 13 can keep most of their property while spreading out past due payments over time. Generally one will have an extra 3-5 years to catch up with their debt according to the schedule you've worked out with your trustee. During that time, you will only be working with your bankruptcy trustee and never have to have direct contact with the creditors.
Chapter 13 will go on your credit report but it usually stays on for less time than a Chapter 7.
Filing for bankruptcy is a serious move and should not be done without first exploring every other option. In the old days people often believed that filing for bankruptcy was not that big a deal. Much of that has changed now, and it can be a very big deal in terms of you getting future credit or loans.
The bankruptcy laws have changed recently and anyone considering filing should first seek out the advice of a competent and qualified bankruptcy attorney. These specialized attorneys will be able to best guide you toward the correct option that will best suit your needs.
Always research the law and the specialized attorneys in your area to ensure that you are getting the best assistance. For instance, you can research about filing bankruptcy in Nebraska by visiting their local state bar page to look specifically for a Nebraska bankruptcy attorney.
One note of caution when using a qualified bankruptcy attorney, remember to ask for previous cases that the attorney has worked on and ensure you have a clear indication on their fees before proceeding