How Chapter 13 Affects Your Finances
Before filing a Chapter 13 bankruptcy, there are various features of the process you should become familiar with. How you can settle your debt and what your credit score will be like after Chapter 13 are some of the most significant aspects.
Learning all about this will greatly improve your odds of coming up trumps and sorting out your financial difficulties. For that reason, the leading bankruptcy lawyers are here to cover what Chapter 13 brings to the table and guide you through the whole process.
Do you pay back all your debt Chapter 13?
One of the reasons why Chapter 13 bankruptcy is so popular is that it allows you to pay back only a portion of your debt and have the rest of it cleared. So, it’s easy to see why it may prove to be a more favorable course of action than Chapter 7. However, it all depends on your particular situation.
In order to be eligible for Chapter 13, you need to have a regular source of income, as well as some disposable income. You propose a three- to five-year repayment plan, which will include the amount you will pay back to the creditors and the time it will take you to do so.
To determine your monthly payment, the following three factors enter into the equation:
- Disposable income
Your income will be taken into account, minus national standards deductions for items such as housing, utilities, healthcare, etc.
- Priority debts
These include debts that cannot be written off under Chapter 13 such as tax, child support, alimony, and student loan debt.
- The best interest of creditors
Your repayment plan must provide the creditors with at least the amount equal to the one they would receive under Chapter 7.
At the end of your repayment plan, the remaining debt not covered by your Chapter 13 will be cleared. For example, if you owe $50,000 and propose a plan requiring you to pay $400 on a monthly basis for the next 60 months, you will pay back less than half of your original debt.
Does Chapter 13 hurt your credit?
In general, a Chapter 13 bankruptcy remains on your credit report for seven years. Like all bankruptcies, it will be detrimental to your credit score which will experience a drop in a number of points. This will make it difficult to take out another loan, in the sense that you will have to file a motion and obtain court permission first.
The good news is that Chapter 13 is more favorable than Chapter 7 in the eyes of future lenders. This mainly has to do with the fact that under Chapter 13, you agreed to pay back at least some of your debt, increasing your odds of obtaining credit.
At the end of the seven-year period, make sure to check whether or not the bankruptcy has been removed from your credit report. If not, you are entitled to dispute your credit and have it reviewed. A report unburdened by bankruptcy will make the process of rebuilding it much easier.
Trusted bankruptcy lawyers will turn your life around
Reaching the point where filing for bankruptcy is the only way out is extremely stressful. All types of bankruptcies come with the same amount of intricacies and potential obstacles. In that respect, Chapter 13 is no different.
That is why you need Chang & Diamond by your side to navigate you through the proceedings and emerge with stable finances at your disposal. Once we help you return money back into your pockets, the days of tightening your belt will be over. Relaxation is waiting for you in the Gaslamp Quarter.
Chang & Diamond are here for you. Reach out to us now!