If you are having a steady flow of income every month but finding it difficult to keep up with your monthly debt payments, you can opt for Chapter 13 bankruptcy. Unlike Chapter 7 bankruptcy, where you are required to convert your assets into cash, you don’t have to lose any property in Chapter 13 bankruptcy.

Changes in Chapter 13 bankruptcy

Chapter 13 bankruptcy has undergone few changes with the introduction of New Federal Bankruptcy Laws. Previously, you had to keep aside the cash that was left after making payments for basic needs for the repayment plan. With the introduction of New Federal Bankruptcy Laws, few changes have taken place. You are still required to hand over the disposable income; you have to calculate the disposable income by making use of “allowed” expenses as ordered by the IRS. This holds true for consumers whose income is higher than the median income. Thereafter, the allowed expenses are to be subtracted from the consumer’s average income. The income of the last 6 months prior to filing bankruptcy is taken into account.

What happens in Chapter 13 bankruptcy?

The court prepares a repayment plan that doesn’t attract any interest rate. A written plan is worked out that has details of the entire plan. It includes details of transactions that are likely to take place and tenure of the entire program. You should start making repayments as per the new repayment within 30 to 45 days from the date the case commenced. In Chapter 7 there is a transitory phase when a trustee appointed by the court takes the money and pays off creditors. In case of Chapter 13, the same procedure doesn’t exist. The creditors are required to support the repayment plan and while the consumer is making payments as per the new repayment plan, creditors are not allowed to make any claims from debtors.

Advantages of Chapter 13 bankruptcy

The main advantage of Chapter 13 bankruptcy as compared to Chapter 7 bankruptcy is the “full discharge option”. This is not applied in Chapter 7 bankruptcy. There is another advantage of filing Chapter 13 bankruptcy. And that is it halts foreclosures.

Filing for bankruptcy is financially hazardous because it gets recorded in the credit report for a period of 10 years. You also find it difficult to get fresh credit as per your terms as your credit rating gets damaged.