When debt issues start mounting, they can cause individuals to live in a cycle of distress. With collectors making frequents calls and past due notices showing up in the mail daily, the pressure just continues to mount. At some point, everyone will eventually reach the breaking point when they have to start looking for solutions.
If a debtor’s credit rating is still in reasonably good condition, there are debt solutions available. Debt consolidation and consumer proposals come to mind. In a consumer proposal, for example, attorneys from firms like Harris and Partners could negotiate agreements with your creditors that would outline new debt terms that would give you a reasonable chance to repay your debts without court involvement.
However, not all debt issues are no easily resolved. When things get to the point when options are limited, filing bankruptcy might be the only way out.
In the most drastic cases, Chapter 7 bankruptcy might be the best solution. It gives the debtor an opportunity to eliminate a bit of their problem debt, which should provide relief. However, a Chapter 7 discharge carries a big price tag. It can cost the debtor some of their assets and do significant damage to their credit rating for up to 10 years.
If someone still has a significant income source, they might not be able to qualify for a Chapter 7 discharge. In such cases, a Chapter 13 bankruptcy filing would be the next logical solution.
What is Chapter 13?
The concept behind Chapter 13 bankruptcy is based on the premise the debtor is merely seeking an opportunity to reorganize their debts in such a manner that they can better manage them. They want to honor their debt, but they just need some help and cooperation from creditors to do so. If creditors won’t cooperate, Chapter 13 is the right call.
As part of the chapter 13 filing process, the debtor will gather the required documentation related to their debt issues and sources of income. While the process is ongoing, the court may request that bill collectors cease collection efforts to give the court time to rule on the bankruptcy filing. After working through a court trustee, the ruling judge could opt to approve the Chapter 13 filing. In such a case, a ruling would be entered that allows the debtor to abide by a repayment schedule to satisfy all creditors. In many cases, the repayment period will be 3 to 5 years. The debtor would start making debt payments to the court to be redistributed to creditors as per the agreement.
As long as the debtor abides by the court ruling, the debt should get cleared in due time. If not, the debtor risks the Chapter 13 filing being overturned and the potential loss of penalties and assets. It’s noteworthy that a Chapter 13 bankruptcy filing will still result in significant damage to the debtor’s credit rating for about 7 years. However, there are ways they can minimize the damage to their credit rating.
Is Chapter 13 Worth It for You?
Whether or not filing chapter 13 is worth it will depend a lot on the ultimate outcome. First, you would need to be able to minimize the damage to your credit in order to live a reasonably sane financial life. If you could do that, you would have effectively removed the most prominent negative effect of any bankruptcy filing.
Beyond dealing with the credit issue, it would be incumbent on you to follow through on the Chapter 13 bankruptcy agreement. That would make the filing worth it. As mentioned above, not following through could result in additional problems beyond debt problems, which would make Chapter 13 seem like a bad idea.
To be clear, there are plenty of chapter 13 horror stories out there. People have thought they were free and clear of debt obligations after being approved for Chapter 13 only to go out and start accumulating more debt. The extra debt resulted in them not meeting their Chapter 13 obligations, which resulted in the loss of their homes and other valuable assets, plus they had more debt to boot.
Of course, there chapter 13 success stories as well. Many people have gotten through Chapter 13 and gone on to accumulate great fortunes. They just needed that little bit of help clearing a temporary debt issue and off they were to success.
Coping With Chapter 13 Obligations
If you are wondering about how to live on a chapter 13 budget, there are a couple of things upon which you can focus.
First, you might want to lay out a budget and see what you are facing. Budgets can be very useful at keeping your mind on priorities until you can work your way through debt problems. The second thing you might want to consider is downsizing your lifestyle. There is a good chance that trying to live beyond your means is what got you into trouble in the first place. By getting a cheaper car and place of residence, and then cutting out a lot of frivolous spending, you might find it easy to like within your new budget.
Keep in mind, your life will change. However, you will survive and learn if you keep in mind that following Chapter 13 requirements is a short-term problem.
The Cost of the Process
When you identify your debt problems are no longer manageable, you might want to start thinking about bankruptcy by contacting an attorney that specializes in such filings. Your attorney can help you decide if Chapter 13 is right for you. As for how much does a lawyer charge for chapter 13, it varies based on state and personal circumstances. While a majority of the cases might run just under $3,000, some can range as high as $5,000.
If you are feeling the debt walls closing around you, it might be time to seek some help. We hope this article has given you a starting point to work with, and if not, hopefully, some peace of mind.