When a consumer files for bankruptcy, Chapter 7 and Chapter 13 are the main options. Chapter 7 involves liquidating assets to cover creditor claims, but many people do not qualify for this category. Some might not even prefer it. Chapter 13 becomes the bankruptcy category numerous Pennsylvania debtors explore for their protections.
Chapter 13 defined
Chapter 13 is often referred to as a wage earner’s bankruptcy because it assists those who have a regular source of income. With Chapter 13, the debtors operate under a payment plan that runs for three to five years, and they must make all the payments during that period.
The debtor would propose a payment plan to the court, and the judge may accept or refuse it. Ultimately, the proposed payment plan must be reasonable. Often, the overall amount of owed debt is reduced to a payable amount. Most unsecured debt typically faces a discharge in all or part. However, not all debt is dischargeable, including alimony, child support, certain taxes, and some other obligations.
Notes about Chapter 13
Chapter 13 has additional requirements, such as being underneath an established monetary threshold for secured and unsecured debt. Chapter 7 may be an option for those whose debts exceed the thresholds. Also, filers must complete a credit counseling program.
Some debtors might attempt to pay their debts without going through bankruptcy, but they might come to the realization they don’t have the funds to pay debts in full. Filing for Chapter 13 bankruptcy would mean all collection actions stop. Chapter 13 presents an option and a path to a fresh financial start. The filers must make all required monthly payments. If not, the bankruptcy may be dismissed, and collection actions resume.