Last week, we started discussing how an unforeseen event: divorce, loss of a job, debilitating injury, serious illness, etc. can wreak financial havoc on even the most financially prudent individuals, rapidly draining their bank accounts and pushing them toward the brink of insolvency.
We also explained how those who find themselves in this situation should take comfort in the fact that they do have options, including Chapter 13 bankruptcy, which enables those with regular incomes to pay off all or a portion of their debts via regular installment payments over three to five years. In today’s post, we’ll continue this discussion, examining who qualifies for Chapter 13 and some of its advantages.
Eligibility for Chapter 13
The bankruptcy rules are relatively straightforward when it comes to whether a person is eligible for Chapter 13: they may file if their unsecured debts are less than $383,175 and their secured debts are less than $1,149,525.
For those unfamiliar with these terms, a secured debt is essentially one in which borrowed money is secured by some sort of collateral (i.e., a mortgage or car loan), while an unsecured debt is not secured by no collateral (i.e., medical bills or credit cards).
As for these monetary thresholds, they are adjusted by the federal government every so often to reflect any fluctuations in the consumer price index.
The advantages of Chapter 13
Some of the primary advantages of filing for Chapter 13 bankruptcy include:
- It allows people to save their homes by stopping the foreclosure process and enabling them to catch up on past-due mortgage payments.
- It allows people to reschedule secured debts (outside of a mortgage) and extend them over the duration of the repayment plan.
- It puts an automatic stay into effect, such that all contacts from creditors must cease.
- It limits interactions with creditors in that a single payment is made to a bankruptcy trustee who distributes it accordingly.
We’ll revisit this topic in future posts. In the meantime, consider speaking with an experienced legal professional if you have any questions about the fresh start offered by Chapter 13 bankruptcy.