When debts become overwhelming, people often have to make difficult choices. They may need to rework the household budget and make major sacrifices regarding their standard of living. Sometimes, even aggressive changes to financial habits can’t help people pay down their debts.
If creditors threaten to sue or people are at risk of losing valuable property, such as a home or a financed vehicle, they may choose bankruptcy as an effective solution for their challenges. Individuals considering a bankruptcy filing usually have two primary options. They can either pursue a Chapter 7 bankruptcy or complete a Chapter 13 bankruptcy instead.
A Chapter 7 bankruptcy is a relatively fast process. Depending on the volume of cases going through the courts, filers can go from submitting the initial petition to the courts to securing a discharge in a matter of months. The Chapter 13 process is significantly longer.
Repayment plans require years to complete
The main requirement that separates a Chapter 7 bankruptcy from a Chapter 13 case is the requirement to complete a repayment plan. Instead of liquidating their assets to repay creditors, they commit to monthly payments facilitated by the courts until they qualify for a discharge.
The filer reports the debts that might be eligible for discharge. They then attend a meeting with representatives from their creditors and the court-appointed trustee overseeing their case. They negotiate a repayment plan that generally requires that they commit most of their disposable income toward a monthly payment.
Depending on the details of the situation, the repayment plan could last for anywhere from three to five years. It may take anywhere from slightly more than three years to five and a half years or possibly even longer to complete a Chapter 13 bankruptcy. The duration of the repayment plan and how quickly the filer secures hearings influence the final timeline for the process.
Although Chapter 13 bankruptcy can take a filer years to complete, it can help people preserve their resources while simultaneously eliminating their most pressing financial obligations. Learning the basics about Chapter 13 bankruptcy can help those with valuable property or above-average income evaluate whether this option is appropriate for them.