When debating between Chapter 7 and Chapter 13 bankruptcy, you may be deciding if you want to have your debt forgiven after liquidating assets (Chapter 7) or if you want to pay the debt off through a repayment plan (Chapter 13).
That is generally how these two types of bankruptcy work, which is why Chapter 13 takes so much longer -- three to five years, typically speaking -- than Chapter 7. You still pay off that debt over time. You just get an affordable payment plan and a new budget to help you pay.
However, it is important to note that the Chapter 13 bankruptcy may also forgive some of your debt. When the repayment plan is set up, officials will determine how much you can realistically afford overall and set up a repayment plan to match. Your income and earning projections help define what you can afford. That may be less than 100 percent.
For instance, one woman had over $100,000 in debt. When her Chapter 13 plan was created, she was ordered to pay off a total of $88,500, knocking around $20,000 off of her debt. She was given 60 months, or five years, to make those monthly payments. If she completed it on time and paid the full amount, that additional debt would get forgiven.
This is just one example. Every bankruptcy case is unique. However, this shows you just how important it is to understand all of your options and the legal process. You may find that Chapter 13 holds some advantages you did not know about before that you would like to utilize.
Source: Bankrate, "Paying off Chapter 13 plan early," Justin Harelik, accessed April 26, 2018