Affordable Payments Out of Debt

If a Chapter 7 won't meet your financial needs, a Chapter 13 likely will. In a Chapter 13, your income and assets stand good for your debts. A Chapter 13 discharge requires you to make payments for three to five years. But compared to Chapter 7, Chapter 13 has several advantages.

• If you have filed a Chapter 7 in the past eight years, you aren't eligible for a new Chapter 7, but you can file a Chapter 13 to get the Automatic Stay and frequently a discharge.
• If you have assets you would stand to lose in a Chapter 7, you can pay your creditors over 3-5 years what they could expect from a Chapter 7 distribution and keep all of your stuff.
• If you have debts that can't be handled in a Chapter 7, like debt from separation agreements in a divorce or mortgage arrearages, those can be handled through a Chapter 13.
• If your income is high enough that you aren't eligible for a Chapter 7, you can file a Chapter 13 to turn never-ending debt into five years worth of payments that, by definition, you can afford (even if it doesn't pay your creditors 100% of what you owe).

Because of the limitations listed above, not everyone can find relief in any chapter of bankruptcy. Talk to an experienced bankruptcy attorney to see if bankruptcy is the best option for your situation.

The chief practical difference between a Chapter 7 filing and a Chapter 13 is that the Chapter 13 petition is filed with a plan of repayment. The plan will be created between you and your attorney and, like everything in bankruptcy, strikes a balance between your rights and your creditors'. I always say there's a dynamic tension between a good faith effort to repay (your creditor wants top dollar) and your actual ability to repay (you want to make the smallest payment possible).

Because of that tension, the budget in a Chapter 13 is the most important part of the filing. Since creating a real life budget is as much Art as Science, an experienced bankruptcy attorney can make a world of difference in your plan payment--the difference between some belt tightening and 3-5 years of struggle. Besides having a good sense of what allowances for items like food and entertainment are considered reasonable, we can ask enough questions to jog your memory about expenses that may not happen monthly, but need to be considered.

While Bankruptcy Courts tend to expect budgets that show some "belt tightening"--described in the Eastern District of Kentucky as "not living the lifestyle that got them into debt in the first place", if you have managed to keep your minimum balances paid, but know you're treading water, a Chapter 13 payment can often be a fraction of those minimum payments and leave you debt free in sixty months.

While a Chapter 13 should never be the first choice for a bankruptcy filer (contrary to popular belief, it will not restore your credit faster than a Chapter 7), a well crafted Chapter 13 plan can make overwhelming debt manageable for a lot of people. Reach out to a bankruptcy attorney to see if Chapter 13 or another option can help you find Life After Debt.