The different forms of bankruptcy can help people experiencing financial hardship make arrangements that will help them regain control over their budgets. For many people, Chapter 7 is the form of bankruptcy they’d prefer to file, but it isn’t always the best option.
Chapter 13 bankruptcy is a viable solution for individuals who have more debt than they can currently handle but who make too much qualify for Chapter 7 bankruptcy. Individuals with valuable property that they cannot exempt from liquidation may also choose Chapter 13 over Chapter 7 when filing for individual bankruptcy. Although the discharge won’t be granted as quickly, it is accessible to more people.
What sets Chapter 13 bankruptcy apart
One of the key differences between a Chapter 7 filing and a Chapter 13 bankruptcy is the requirement to make years of structured payments through the courts. Individuals negotiate repayment plans with the support of the trustee overseeing their bankruptcy case and then make three years of payments through the courts or more.
The repayment plan is often very strict and will require that you commit the majority of your disposable income toward those payments. If you lose your job, you may no longer have the resources to stay current on your repayment plan. What happens then?
Changes in income require court involvement
When your income changes, your specific repayment obligations can change as well. However, you can’t just cease sending payments or start sending less than the agreed-upon amount. You will need to notify the trustee administering your bankruptcy case of the change in circumstances.
Formal changes to your repayment plan may be necessary so that you don’t fall behind and end up non-compliant. Taking action as soon as possible is crucial because delays could leave you significantly in arrears and unable to catch up on your payments.
Provided that you adjust your repayment plan and continue with it despite losing your job or experiencing a drop in income, you can potentially still qualify for a discharge. Although the repayment plan can sometimes create challenges in a Chapter 13 individual bankruptcy filing, it is also crucial to your success.
Learning more about the issues that can arise in a complex individual bankruptcy will help those trying to regain control over their finances.