Due to poor economic conditions that has affected almost everybody, millions of people across the country have lost their primary source of income and can no longer afford to maintain their lifestyle. To keep up, many people decided to use lines of credit to maintain their lifestyle and pay bills. Unfortunately, this led to a large accumulation of debt, which can be impossible to repay. For many people, declaring bankruptcy is the only option. One of the most popular forms of bankruptcy is chapter 13, which has unique characteristics that differs it from other forms of bankruptcy.
When you need to know how to declare bankruptcy via a chapter 13 bankruptcy filing, the first thing you must understand is that it does not permanently relieve a debtor of their obligations, which is the case under chapter 7. Under chapter 13, a debtor will work with all of their creditors to establish a list of outstanding debts and attempt to create a repayment plan. Often times, the repayment plan is monitored through an intermediary who will create the plan, accept payment from the debtor by garnishing wages, and pay the creditors as agreed. Typically, chapter 13 will result in a creditor relieve a debtor of a portion of their outstanding debt, reducing interest rates, and accepting a longer repayment schedule, all of which will reduce the debtor’s monthly payment.
The second characteristic of this form of bankruptcy is that it will stop the foreclosure process for the time being. If a debtor has fallen behind on their unsecured loan payments, there is a good chance that they have also fallen behind on their mortgage payments as well. If this is the case, they are most likely going through the foreclosure process as well. Once a debtor declares chapter 13, the bank will receive notice of the declaration and the foreclosure process will have to stop immediately.
After chapter 13 bankruptcy is declared, the debtor will enter into their bankruptcy plan, and garnishment of wages will begin immediately. Furthermore, the debtor should expect that their credit score will significantly drop. Typically, evidence of declaring bankruptcy will remain on the debtor’s credit report for up to 10 years. In this time period, a debtor will have a difficult time obtaining a loan or line of credit.