Bankruptcy chapter 13 is the individual's equivalent of the business reorganization
Bankruptcy (chapter 11), and the farm version of the same thing (bankruptcy chapter 12). It allows an individual person to create a 3-5 year plan to pay off his or her debts (or as much of them as that many years of disposable income allows), and have any debts remaining at the end of the plan dismissed by the court.
There are lots of differences between bankruptcy chapter 13 and bankruptcy chapter 7 -- but one of the most important for the family that's about to go bankrupt is the amount of assets that each allows you to keep. Whereas chapter 7 requires you to liquidate all but a slim list of exempt assets, chapter 13 allows you to keep your assets -- but it requires you to prove that you have a stable income that will allow you to live and pay off your debts at the same time, and then maintain that stable income for 3-5 years, which can be difficult in the current economic environment. If you lose your source of income, you may be forced to modify your chapter 13 filing into a chapter 7 and liquidate your assets to pay off your debt regardless.
Bankruptcy chapter 13 allows you to pay off your debts at a significant discount so long as you can pay on each one regularly for the 3-5 years that the plan lasts. At the end of the plan, any remaining debts are dismissed by the court.
The opportunity to absolve yourself of debts while still keeping all of your belongings is a tempting one, but there are some downsides to bankruptcy chapter 13 that you will want to consider strongly. First is the fact that you cannot qualify for chapter 13 unless the plan you make would end up paying your creditors more than a chapter 7 liquidation -- so in the long run, sometimes it may financially, be to your advantage to liquidate under chapter 7 and then rebuild your goods over 3-5 years. However, this decision will need to be discussed carefully and thoroughly with one of our bankruptcy attorneys to determine the best choice for you. Also, while the 10-year period that a chapter 7 bankruptcy stays on your record begins the moment the bankruptcy is approved; in contrast, under a chapter 13 bankruptcy, many creditors look at the completion of a chapter 13 plan as a positive step toward rebuilding your credit.
888-459-3077 -- that's the phone number for Schmidt Law Firm, your guide to navigating the confusing world of bankruptcy. An Arkansas attorney from Schmidt can help you decide which -- if any -- of the chapters of bankruptcy will put your family in the best financial position going forward. Call us today and schedule a free consultation and get your family headed down the right track.
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