The general idea behind Chapter 13 bankruptcy is that you can reorganize your debt into a new repayment plan. This new organization of the money you owe helps you pay it off over time, though you do have set payments that you have to make on a set schedule.
If you’re considering this, you may be wondering what the benefits really look like. After all, you don’t get rid of the debt, as you would with Chapter 7. You still owe the money that you owed before. How does that actually help you moving forward?
Some debt may be eliminated
The first thing to note is that some debt can be eliminated, at least in part, through Chapter 13. It does not eliminate all of it after liquidation, like Chapter 7, but that does not necessarily mean you’ll have to pay off 100% of what you owe. You may get to pay back just a portion of some of your debts.
The biggest advantage, though, is that it can still improve your financial position by making that debt affordable. It may not have been affordable under the initial terms. Even if you owe the same amount, Chapter 13 can change the way you approach it.
For example, say you have three different sources of debt. You owe $3,000 per month in total. Since you only have $1,000 per month to put toward it, you can’t afford that debt. However, Chapter 13 may reorganize it so that you have longer to pay — three to five years, in most cases — which can reduce the monthly payment. For instance, you may be able to get it down to $1,000 per month.
By doing so, you make the debt manageable. It fits your budget. You can make the payments over time, eliminate what you owe that way, and give yourself a fresh start.
Getting started
Are you facing debt that you can’t afford and starting to look into your legal options? We would love to help you explore them. Please call The Law Office of Russell Gary Small today to get started.