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Chapter 13 Bankruptcy: Why Do It?

Consumers typically file a Chapter 7 or a Chapter 13 bankruptcy, but for the purposes of this article, we’re going to examine Chapter 13 and its benefits. A Chapter 13 is often referred to as a “wage earner’s plan” because it’s suitable for people with regular incomes, especially those whose incomes are too high to meet the requirements of a Chapter 7 bankruptcy.

A lot of people with regular incomes are swimming in debt, especially if an illness, disability, or accident caused them to accumulate thousands in medical debt. Under a Chapter 13, debtors enter into a 3 to 5-year repayment plan where they pay off all, or a portion of their total debts. If the debtor’s income is below the state’s median, the debtor will go on a three-year repayment plan.

On the other hand, if the debtor earns more than the state median, he or she will be placed on a five-year plan. During the life of the repayment plan, the creditors are prohibited from making any collection efforts against the debtor, including liens, phone calls, letters, lawsuits, etc.

5 Key Advantages of a Chapter 13

Here are the 5 key advantages of a Chapter 13 bankruptcy:

1. Perhaps the most significant benefit, especially compared to a Chapter 7, is how a Chapter 13 can help debtors avoid foreclosure. When debtors file under this Chapter, they can get caught up on delinquent mortgage payments over time. It does the same for missed payments on auto loans.

2. Chapter 13 is only reported on a credit report for 7 years, whereas a Chapter 7 is reported for 10 years.This means that with a Chapter 7, creditors will know that a debtor filed bankruptcy for three years longer than with a Chapter 13.

3. A Chapter 13 lets debtors lower how much they pay in debt each month so they can get the breathing room they need.

4. A Chapter 13 has a provision that can protect co-signers or third parties who are also liable for a joint debt.

5. With a Chapter 13, the bankruptcy trustee handles making the payments with the creditors so the debtor has no contact with them.

Next: Why Not File Bankruptcy?

Contact our firm today for a consultation with a York Chapter 13 attorney!

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