Ninety-nine percent of the individuals who file bankruptcy will be filing either a chapter 7 or a chapter 13. This means that there are only two different kinds of bankruptcy for you to consider – and that is great news right? But beware, because, although there are only two different types of bankruptcy that apply to your situation, the two types are very different, and you want to choose wisely.
I’ve discussed the differences between chapter 7 and chapter 13 bankruptcy in the past here, so check that out if you’re curious. But in this post I thought I’d explain how the Chapter 13 plan works: how it is computed, what it covers, how long it lasts, etc.
In the most basic sense, what you are doing when you file Chapter 13 is you are saying, “ok, I’ve gotten behind on my debts, and I want to create a plan to pay off what I’m behind on over time.” For example, imagine you have a mortgage, you have gone through a rough patch financially, and you are several months behind. But you want to get back on your feet, and you want to keep your house out of foreclosure. Imagine you owe $3,600 in back mortgage payments. This means that the mortgage is “in arrears” and that the “arrearage” is $3,600. When you enter a Chapter 13 bankruptcy, your Chapter 13 plan must pay off the arrearage over the course of the plan. So, if you have a three year plan, you must pay $100 per month into the plan, as well as continue to pay your regular monthly mortgage payments.
Now, that is a basic explanation – there are a few caveats and complications. And in the next post I will discuss those in more depth.
In the meantime, if you are falling behind on your debts, click here to contact me for a free consultation. There’s no reason not to talk to an experienced bankruptcy lawyer and find out what your options are.