Upon filing for a Chapter 13 bankruptcy, just as with a Chapter 7, the court will appoint a trustee. However, the difference between this and a Chapter 7 case is that the trustee does not take action to sell a person’s assets. Instead, a trustee assesses the debt owed and works out a repayment schedule, which is determined largely by a person’s income. This type of bankruptcy also protects from wage garnishments, further collection attempts and property foreclosures, when necessary.
Comparing Bankruptcy Types
In comparison to a Chapter 7 filing, Chapter 13 protection is often preferred since it allows a person to retain their personal assets while working towards debt reduction or full debt elimination. Also, a this type of bankruptcy extends a longer period of protection by its nature. Finally, specific to this type, creditors are barred from pursuing further satisfaction from cosigners on any remaining debt.
How to File for a Chapter 13 Bankruptcy
By using the same paperwork to file for Chapter 7 protection, a person can also file for a Chapter 13. After paying a filing fee of a few hundred dollars, a trustee is then appointed by the federal court to assess a person’s debt and determine a repayment schedule. A person is also required to attend credit counseling. Though a trustee is assigned, a person is also able to submit their own proposal for repaying unsecured debts, such as credit cards, of which the court may accept or reject. For secured debts, an agreement is drafted, which requires the minimum repayment terms agreed to by a creditor. Future payments are then given directly to the trustee who then pays them to the creditor until the debt is paid off and the bankruptcy is closed.
Is This Type of Bankruptcy Good for Everyone in Debt?
First, not everyone is eligible for a Chapter 13 bankruptcy. For instance, individuals whose total debt is more than a certain amount may not qualify. Also, because a person’s income is used to repay debt and the repayment terms are established by a court appointed trustee, it is not uncommon for people in the midst of a Chapter 13 case to face further financial challenges while struggling to repay debts owed.
How Does Bankruptcy Affect Personal Credit?
Often people are convinced that a bankruptcy filing will give them a clean credit slate and automatically reposition them with good credit. However, this is only partially true. Although debts are paid or discharged, bankruptcy filings of any type can reflect very badly on a person’s credit report since individual creditors may be prone to view the person as a bad credit risk. On the other hand, after all debts are paid, a person is in a position to rebuild credit again, particular with creditors that specialize in extending credit to those with previous bankruptcy filings. Because the road to debt recovery through Chapter 13 is often very difficult, this type of debt relief is commonly recommended only to those with no other recovery options.