Is a Chapter 13 bankruptcy right for me?

Consumers in Pennsylvania should understand how Chapter 13 bankruptcy plans differ from Chapter 7 plans to determine which one may be best for their needs.

People who live in Pennsylvania and who are facing extreme financial difficulties might begin to think about filing for bankruptcy. However, some people are either embarrassed about this or wrongly assume that they will lose all of their assets in the process. Before making a final decision about a bankruptcy, debtors should learn about the two primary forms of consumer bankruptcy and what is really involved.

Chapter 7 bankruptcy

First, people must know that Chapter 7 bankruptcy is the one that is associated with the loss of assets but not every asset is lost. Generally, assets not covered by bankruptcy exemptions are subject to being taken by the bankruptcy Court to go towards an individual's debts. There are however a number of exemptions which protect an individual's assets. State and Federal exemptions provide protections for a variety of assets such as homes, automobiles, bank accounts, tools, household goods and furnishing, life insurance policies, retirement accounts and others. .

A Chapter 7 bankruptcy is a relatively fast process, taking generally just a few months to achieve a discharge of debts.

Chapter 13 bankruptcy

A Chapter 13 bankruptcy does not involve the loss of any assets. Instead, as the U.S. Courts indicate, debts are reorganized so that the consumer can make regular payments to repay some amount of what is owed.

A trustee is appointed to essentially manage the case and interface with creditors to determine what will or will not be paid back to each one. Then, the debtor makes monthly payments to the trustee and the trustee distributes funds to each creditor per the agreement. This goes on for a period of 36 months to 60 months.

Some debts are paid in full, like legal debts. Then secured debts and unsecured debts are paid to some degree. A Chapter 13 bankruptcy is a chance for people to get caught up with what is owed and to even get current on a mortgage. It is important to note that a mortgage is not part of the bankruptcy and loan payments must be made in addition to the monthly bankruptcy payments. This type of bankruptcy is often popular with homeowners who do not want to lose their homes.

The wage earner's plan

Because of the need to repay some of a person's debts, a Chapter 13 is often called the wage earner's plan. There are parameters about how much debt a person can owe and what income they may or may not need in order to qualify for a Chapter 13 bankruptcy.

For both Chapter 7 and Chapter 13 bankruptcy plans, there may be some types of debt that are not able to be included. This is one of the factors that people should talk with an attorney about before they choose a path to address their debt needs.