Residents of Michigan who struggle with debt should explore their options for alleviating that debt. Chapter 13 bankruptcy is one of them. Knowing what it means can help you decide if this type of bankruptcy is right for you.
What is Chapter 13 bankruptcy?
Chapter 13 is a type of bankruptcy that allows people in debt to reorganize their finances so that it’s easier for them to settle their debt. This type of bankruptcy isn’t necessarily for everyone, but it’s appropriate for individuals who have sufficient income to be able to repay part or even all of their debts. If you can pay back your creditors but are having difficulty keeping up with your creditors’ demands, it might be right for you.
How does Chapter 13 bankruptcy work?
When a person files for Chapter 13 bankruptcy, they are able to keep their assets while repaying their debt over a period of three to five years. Certain information is needed for the court to determine a repayment plan. That information includes the following:
- A list of creditors and the amount of money owed to them
- The person’s source of income and how much they earn
- A list of the person’s property
- The person’s living expenses
- A copy of the person’s most recent federal income tax return
A proposed repayment plan is submitted to the court as well. If it’s approved, the individual begins to make payments to a trustee who is appointed by the court. The trustee will then distribute the funds to the person’s creditors to satisfy their debt.
Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy is not a way to get a quick fresh start. Instead of having unsecured debts eliminated, these debts are required to be paid back. Debtors just get a better solution for repaying their debts with the repayment plan over the three-to-five-year period.
