Those who are seeking debt relief may seek protection in bankruptcy court. The two most common forms of bankruptcy are Chapter 7 and Chapter 13, and Chapter 13 bankruptcy is often sought by those who want to protect assets from liquidation or other creditor actions. When a debtor applies for Chapter 13 bankruptcy, that person is entering into a debt reorganization plan that takes as many as five years to complete.
Payments are made to a court-appointed trustee who collects the money and distributes it to creditors as agreed in the plan. Depending on the terms of the repayment plan, some creditors may receive only a portion of the balance owed or may forgive a certain portion of the balance.
When individuals file for bankruptcy, they are doing so because they can no longer keep up with their debt and their property may be at risk of being seized by creditors. Bankruptcy is often seen as an attractive choice because it may temporarily stop foreclosure proceedings that may have been initiated by a lender. However, a debtor may or may not receive the benefits of a Chapter 13 bankruptcy unless the debt repayment plan is completed successfully.
The decision to file for bankruptcy is one that could have many consequences. Although it may be seen as a way to get a financial fresh start, payments still need to be made under the terms of a Chapter 13 bankruptcy. Before making a decision as to whether or not to file for bankruptcy, it may be worthwhile to talk to an attorney with experience in this area. The attorney can describe the requirements of each type of filing.
Source: Michigan State University Extension , “Should you file bankruptcy? Part 4”, William Hendrian, July 15, 2014