Individuals filing for personal bankruptcy quickly have two main options. Unless someone is a business owner, professional fisherman or farmer, they probably need to choose between Chapter 13 and Chapter 7 bankruptcy.
Chapter 7 bankruptcy is the faster option, with people sometimes receiving a discharge of their unsecured debts within a few months of filing their initial paperwork. However, quite a few people do not qualify for Chapter 7 bankruptcy. Only those who pass a means test and can show that their adjusted income is below the state average for their household size are typically eligible for a Chapter 7 bankruptcy. Many others may decide to pursue a Chapter 13 bankruptcy, which is available to anyone regardless of their household income.
Chapter 13 bankruptcy involves years of payments
One of the reasons that more people can qualify for a Chapter 13 bankruptcy is that they need to make payments to their creditors before they are eligible for a discharge. There is a meeting where the person filing, a trustee appointed by the courts and representatives from different creditors all meet to discuss the filer’s repayment plan.
The process involves reviewing a proposed plan and adjusting it as necessary. Generally speaking, the filer needs to commit the vast majority of their disposable income toward payments for somewhere between three and five years in a Chapter 13 bankruptcy. If they fulfill the repayment plan and successfully complete the bankruptcy process, they may receive their final discharge shortly after making their last scheduled payment.
Generally speaking, it will take at least three-and-a-half to four years to complete a Chapter 13 bankruptcy, although some people find that the process takes longer than others. The eventual discharge of the remaining balance due on someone’s unsecured debts and the protection from collection activity that someone receives during the bankruptcy can make the challenges of complying with a long-term payment plan worthwhile.
While a Chapter 13 bankruptcy is not a fast solution to debt issues, it is accessible to many people who need support reworking their finances. Chapter 13 filings do generate immediate protection from collection activity as the automatic stay typically takes effect on the day that someone files their initial paperwork. Having a realistic understanding of what Chapter 13 bankruptcy usually involves may help people optimize the benefits that they derive from a personal bankruptcy filing.
