Chapter 13 bankruptcy is one of the most common types of bankruptcy filed. More people may qualify for Chapter 13 bankruptcy than Chapter 7 bankruptcy, and the process is not as restrictive or complex as Chapter 12 or Chapter 11 bankruptcy proceedings.
That being said, there is a lot of misinformation regularly shared about Chapter 13 bankruptcy. People who have heard any of the three myths outlined below might feel averse to filing for Chapter 13 bankruptcy even though a filing might be in their best interests.
What inaccurate information do people sometimes share about Chapter 13 bankruptcy cases?
Personal property could be at risk
Chapter 13 bankruptcy does not involve any sort of asset liquidation. Chapter 7 bankruptcy occasionally requires the liquidation of assets if people cannot exempt their resources. No exemptions are necessary in a Chapter 13 case because asset liquidation is not part of the process. People who have paid off their homes or who own highly valuable personal property may choose to file Chapter 13 bankruptcy because it protects their personal assets.
Repayment plans are impossible to fulfill
Chapter 13 bankruptcy usually takes multiple years to complete. The filer must fulfill a repayment plan. Some people wrongfully claim that repayment claims are impossible to follow. However, many people do complete their plans. The filer works along with their attorney, the trustee appointed by the courts and representatives from their creditors to establish that repayment plan. While people do have to commit most of their disposable income to their repayment plan, it is possible to maintain a balanced budget while subject to that three- to five-year plan. They can even modify the plan if their financial circumstances change.
Chapter 13 bankruptcy doesn’t discharge debts
Some people think that the repayment plan means there are no discharges in Chapter 13 filings. In a Chapter 7 filing, individuals go from requesting bankruptcy protection to discharging their financial obligations in a matter of months. The process is substantially longer in a Chapter 13 filing. However, discharge is still the ultimate goal in a Chapter 13 bankruptcy case. The repayment plan can pay down or even eliminate certain debts. Any remaining balance due on eligible debts could be subject to discharge if the filer completes the repayment plan and follows the right process.
Most people, including successful professionals and small business owners, can qualify for Chapter 13 bankruptcy. Learning more about the process can help people feel more confident about taking control of their debt via personal bankruptcy.