Chapter 13 Bankruptcy Explained

Why would I file Chapter 13 bankruptcy if I have to repay my debt anyway?

This is a common mistake when thinking about bankruptcy, and specifically chapter 13 bankruptcy.  Many believe, because of hype spread by creditor card companies, that you have to repay all of your debt in Chapter 13 bankruptcy.  Nothing could be farther from the truth.

First of all, almost every bankruptcy is a Chapter 7.  Chapter 13 is usually only used by people who make a lot of money or who have delinquent loans that they want to pay through the court.  Other than that, you would file a Chapter 7 bankruptcy and make no payments to the court, or anyone else.  Chapter 7 bankruptcy is the easiest, best way to deal with debt.

If you file a Chapter 13 bankruptcy, you pay your disposable net income to the court.  A very simplified explanation of this is subtracting what you spend from what you make.  What is left over is paid to the court for 36 to 60 months, then the rest of the debt is discharged.  Usually, a small amount of unsecured debt is paid.  The things that get paid are things like back mortgage payments or delinquent car payments.  The rest of the debt is discharged, just like in a Chapter 7.  A Chapter 13 is sometimes a better option.

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