A Chapter 7 bankruptcy, otherwise known as a liquidation bankruptcy, wipes out debt completely and appeals to many who cannot afford to pay their bills. But what about people who have non-exempt property that they do not want to give up? Chapter 13 is a reorganization bankruptcy and offers an opportunity for debtors to keep their property by agreeing to make monthly payments toward their debt over the course of three to five years.
Chapter 13 bankruptcies may allow you to restructure your secured debt by reducing principal to the market value of the collateral and lowering payments by extending the repayment period up to 60 months. This works well for obligations such as cars, mortgages and non-dischargeable debt such as federal-guaranteed student loans and tax liabilities. You are protected from creditors, who have little choice but to comply with the bankruptcy provisions giving you an opportunity to regain a financial foothold while keeping your home and car.
Bankruptcy is not available to everyone – there is a means test to determine if you are eligible. Debtors who make enough money to repay their creditors will be barred from filing a Chapter 7 liquidation bankruptcy, though a Chapter 13 reorganization may be an option. If you have had your debt discharged previously through a Chapter 7 or 13, waiting periods to file a subsequent bankruptcy apply.
