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Why Chapter 13 Bankruptcy may be Right for You

Chapter 13 of the US Bankruptcy code, also known as Wage-earner’s Plan, Repayment Plan, or Debt Adjustment, is a reorganization or restructuring type of bankruptcy. This specific bankruptcy chapter allows a debtor to propose a three-year payment plan through which he/she intends to settle all of his/her debts (with the permission of the court, this plan can be extended up to five years).

The restructured payment scheme is intended to make debt payments more affordable for debtors; this method also no longer requires a debtor to surrender any of his/her assets and properties for selling. For those who run a business, specifically sole proprietors, they can continue operations and earn profits, which they can also use to pay off their debts.
Although Chapter 7 bankruptcy is the most common type of bankruptcy filed by individuals seeking debt forgiveness, debtors do have other options, such as Chapter 13 bankruptcy. This chapter of bankruptcy has a number of advantages that Chapter 7 bankruptcy cannot provide and is a great option for debtors who have the means to pay back his or her debts over time, but simply need some assistance.

Debtors, who voluntarily file Chapter 13 bankruptcy, are protected by what is called the “automatic stay,” a court order which will stop creditors and collectors from making any attempt to ask debtors for payment. This means cessation of all phone calls, emails, text messages, letters, lawsuits, attempts to foreclose or repossess any of a debtor’s assets and properties, as well as prohibition from petitioning the court to levy the debtor’s bank account or have a part or all of his/her wages garnished.

Besides the automatic stay, chapter 13 bankruptcy has other benefits, including the possible reduction of the amount of loan (from the value of the principal loan down to the market value of the loan collateral). Among those considered as dischargeable debts are penalties and fines payable to the government (except criminal fines); retirement account loans; debts that were denied discharge during a prior filing of bankruptcy; debts resulting from divorce or separation proceedings; debts incurred due to payment of non-dischargeable tax obligations (such as the debts acquired from the use of credit card in paying taxes); debts resulting from the willful and malicious damaging of someone else’s property (this does not include personal injury cases); and condominium or homeowners association (HOA) dues (these dues, however, have a lien on the debtor’s property. This means that, despite the discharge, the debtor can still lose his/her property; thus, it is imperative that these dues be paid continuously).

As explained by Raleigh bankruptcy attorneys of the Bradford Law Offices, although Chapter 7 bankruptcy is the most common type of bankruptcy filed by individuals seeking debt forgiveness, debtors do have other options, such as Chapter 13 bankruptcy. This chapter of bankruptcy has a number of advantages that Chapter 7 bankruptcy cannot provide and is a great option for debtors who have the means to pay back his or her debts over time, but simply need some assistance.