How does a Chapter 13 bankruptcy work?

Residents in Florida who are struggling with debt but want to avoid asset liquidation may be able to benefit from a Chapter 13 bankruptcy. Here’s how it works.

Consumers in South Florida who find themselves struggling with an ever-increasing mound of debt can often wonder if there is any way to get free from the debt cycle. For some people, a bankruptcy may offer the best way of doing just that and moving forward to create a positive financial future for themselves.

When contemplating bankruptcy, there are choices to be made and one of those choices is whether to file for a Chapter 7 or a Chapter 13 plan. Understanding the Chapter 13 plan is important before making this decision.

Basics of the Chapter 13 plan

A Chapter 13 plan allows a person to repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court, where no assets are lost. It is for this reason that people who own homes may often gravitate toward these plans versus toward Chapter 7 plans.

Instead of liquidating assets to repay creditors, a consumer makes monthly payments to a trustee. The trustee then disperses funds to creditors based on the agreed plan so that they receive at least some of what they owe. These repayment plans last between 36 and 60 months.

Mortgages and Chapter 13 bankruptcies

A mortgage is not included in a Chapter 13 plan. Instead, the bankruptcy is intended to give the homeowner enough financial breathing room and time to get current on any past due mortgage payments. During the bankruptcy, the consumer must make all mortgage payments in addition to payments to the trustee.

Chapter 13 and credit reports

It should be noted that a Chapter 13 bankruptcy is deleted from a person's credit report seven years after the filing date. However, that does not have to prevent a person from rebuilding credit after filing for bankruptcy.

Chapter 13 and divorce

For couples who are in the midst of a Chapter 13 bankruptcy and subsequently decide to get divorced, there are some options to consider. One of these options is to migrate to a Chapter 7 plan. If that type of plan was not available earlier due to the couple's income and expenses ratio, the presence of two household expenses versus only one may well help them to qualify for this.

Legal guidance is a must

South Florida residents who believe that bankruptcy may help them should always contact an attorney for help. This is the best way to make sure they select the right type of plan for their situation. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys' help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment.