Chapter 7 bankruptcy is what most people think of when they consider bankruptcy at all. It is a liquidation bankruptcy. Non-exempt assets are sold, and the money is collected. This money is used to pay down as much of the person’s debt as possible, and the rest of their debt is eliminated.
With Chapter 13 bankruptcy, however, the focus is much different. Debt typically isn’t eliminated at all. Instead, it is just consolidated. A repayment plan is created, and a person has to make monthly payments for the next 3 to 5 years. Once they do, they have paid off all of their debt, and the bankruptcy will have concluded.
But if the person still has to pay their debt, what is the benefit of filing for Chapter 13 bankruptcy?
Making that debt affordable
The goal of Chapter 13 is to make the debt affordable to someone who still has a stable income. After all, they may have multiple different sources of debt. The issue isn’t that they have no money coming in and can’t pay anything, but simply that they can’t pay back all of the debt at once.
With a consolidated repayment plan, though, an affordable monthly payment can be determined. This is based on the person’s income and other financial obligations. So the benefit of Chapter 13 is that it spreads the debt out and gives the person a chance to pay it off over time, making it affordable to them on their current income.
Chapter 13 and Chapter 7 are both viable options, depending on your situation. Be sure you understand exactly what legal steps you’ll need to take.