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Keep assets and pay off debts with Chapter 13

| May 16, 2020 | Chapter 13 |

One of the most terrifying aspects of filing for bankruptcy is losing everything you own just to start over again. For some people, they look forward to the purge. Most people dislike the idea of giving up everything they worked so hard to build and would much prefer to come to some repayment agreement with creditors that is more manageable. 

Chapter 13 bankruptcy provides this opportunity for many Americans. Credit Karma explains that this is because the Chapter 13 route is more akin to a repayment plan than a reset. 

What Chapter 13 bankruptcy is 

Individuals who make a regular income and do not have excessive amounts of debt can file for Chapter 13 bankruptcy if they qualify. This path to bankruptcy generally allows filers to hold on to important assets, such as the home or the vehicle they drive to work. 

Individuals then negotiate a new repayment plan that restructures the debt. If the individual continues to make payments for up to five years, then the court may discharge the debts. 

Debts counted as priority debts 

Forbes explains that priority debts are those that people might still need to pay in full. These, therefore, remain exempt from the potential for discharge after three to five years. Debts that fall into this category include the following: 

  • Student loans 
  • Child support 
  • Taxes 

Debts the court discharges 

The other two forms of debt include secured and unsecured debt. As the names imply, this first refers to debt secured with collateral, such as a mortgage or auto loan. The second refers to debts that come with no collateral, such as credit cards and personal loans. These tend to have much higher interest rates to compensate lenders for taking on more risk. The three-to-five-year discharge opportunity generally applies to both secured and unsecured loans. 

Chapter 13 might not provide all the solutions, such as people trying to discharge student loans. However, there are often other programs available to discharge some of the priority debts that remain.