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How does Chapter 13 bankruptcy benefit debtors?

Chapter 13 bankruptcy is known as the wage earner's plan. It's called this because anyone who has a regular income can work to pay part or all of his or her debts back using this bankruptcy code. The plan is either for three or five years, and it breaks down the debts into manageable payments.

If you have a monthly income that is less than the state median, your plan will be for three years at most. If you monthly income is higher than the state median, then you will pay an installment plan for five years in most cases, unless the court approves a shorter plan. No plan lasts longer than five years, so you can easily make a Chapter 13 bankruptcy part of your five-year-to-debt-free plan.

Chapter 13 is beneficial in many situations because it doesn't require the liquidation of assets. You can save your home from foreclosure with this plan, which may be one of your most pressing concerns. Foreclosures can be stopped with this plan, and delinquent payments can typically be paid back over time. Working with the mortgage company may be of benefit, because the missed payments may be added on later or worked into your plan.

Chapter 13 bankruptcies are much like consolidation loans. You pay a certain amount each month for three to five years. Once you finish this commitment, you can know that your bills are taken care of; you'll have any extra debts discharged in most situations. Your attorney can help you negotiate the terms of your bankruptcy with the court and your creditors.

Source: United States Courts, "Chapter 13 - Bankruptcy Basics," accessed June 17, 2016

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