Filing Chapter 13 Bankruptcy

When you don’t have enough money after meeting your living expenses to pay back your debts to your creditors, you should consider Chapter 13 bankruptcy. Unlike Chapter 7, Chapter 13 bankruptcy allows you to restructure your debt so that you can pay it off over a period of time. For people who don’t want to sell their home, it can be the only option.

Chapter 13 doesn't require that you sell your assets to satisfy your creditors. Instead, you pay back your debt through the court over a three to five-year period. You have to pay your unsecured creditors a percentage of the debt at least equal to what they'd get if your assets were sold as part of a Chapter 7 proceeding. If you complete the repayment schedule, the remaining unpaid unsecured debt is discharged.

Chapter 13 bankruptcy is often used to forestall or prevent foreclosure on real estate, like your home. You have to make your regular monthly mortgage payments directly to the lender. You can, however, also use the Chapter 13 plan to catch up in full on the back payments due on your mortgage. If you complete the repayment schedule successfully, your mortgage will be current.

A bankruptcy notation will appear on your credit report for seven years. Although it's a serious hickey, you can still get credit while the bankruptcy is on your credit report, but you’ll have to pay higher interest rates. Your odds of securing credit increase if you have a good, steady income and make your payments on time.

You don’t always have to include all of your debts in a bankruptcy. You can continue to make payments on a mortgage or vehicle, or even a credit card. Continuing to make these payments on time every time will help you re-establish good credit.