It’s very easy to fall into debt. People start by charging one thing on credit…then another…then another…and before they know it, they’re neck-deep in overdue bills with more piling on. It can be a suffocating experience, and for some, the best option is to file bankruptcy.
Many people choose Chapter 13 over Chapter 7 bankruptcy in hopes that they can keep their house and other assets while paying off their debts. The bankruptcy process is complicated, but the following are a few things people should know about it (Based on this article by the Federal Courts):
1) People still need to make all mortgage payments
Unlike Chapter 7 bankruptcy, debtors can keep their houses and foreclosure processes will be stopped as soon as people file for Chapter 13. However, it’s still required to make mortgage payments on time during bankruptcy.
2) Creditors can’t contact debtors directly
Once a person is on a Chapter 13 plan, they’re assigned a trustee who acts as a middle-man between the debtor and their creditors. Instead of paying creditors directly, debtors pay their trustees who then pay the creditors on their behalf. The creditors are not allowed to contact the debtor directly, which spares the person from potential intimidation.
3) Credit counseling is required before filing for bankruptcy
Except for emergencies, people are required to receive approved credit counseling 180s before filing for Chapter 13 bankruptcy. Please contact a licensed attorney to learn more about this.
4) It requires discipline
Debtors need to repay their debts in 3-5 years depending on their monthly income. In order to do this, they need to adhere to a strict payment plan while living on a fixed budget and avoiding getting into additional debt.
5) It could still end in liquidation
If the debtor doesn’t adhere to their budget and payment plans, the Chapter 13 bankruptcy could be converted to a Chapter 7. Chapter 7 bankruptcy would mean liquidation, which means the debtor’s home and other assets could be sold.
This article should not be taken as legal advice. If you’re considering bankruptcy or another legal option, you need to consult an attorney for guidance. If you’re in New Jersey and seeking legal assistance, we can help you. Brenner Spiller & Archer is a New Jersey law firm that is dedicated to helping families find relief from the burden of debt and other financial woes. For more than 35 years, our bankruptcy lawyers have provided effective guidance on all debt relief matters to clients throughout Central and South Jersey.