Chapter 13 bankruptcy is one of the most useful tools that the law provides for individuals with debts they struggle to manage. Unlike Chapter 7 bankruptcy, Chapter 13 may not require sacrificing significant assets to discharge debt, instead allowing individuals with sufficient income to repay their debts through a court-approved repayment plan.
Filing Chapter 13 bankruptcy provides borrowers with needed relief, protecting against mounting debt and halting collections efforts by creditors. However, it is important for anyone considering Chapter 13 to understand that not all individuals qualify for the process, and the process itself does not do away with every kind of debt.
Chapter 13 can prove useful for those with credit card debt weighing them down if a borrower plans and executes their bankruptcy properly. A careful, well-crafted bankruptcy helps protect the rights of the borrower and create a path back to financial good standing.
Credit card debt and Chapter 13
Chapter 13 repayment plans typically require that borrowers fully repay secured debts and priority debts. Secured debts are backed by collateral that a creditor can claim, such as a car or a house. Priority debts have other legal protections around them, such as tax obligations.
Credit card debt is unsecured debt, meaning that a borrower who files under Chapter 13 may successfully discharge credit card debt without necessarily repaying it in full. This does not mean that the borrower must not pay back any of their credit card debt, but they may not need to repay all of it.
Typically, courts require a borrower to repay unsecured debts equal to the value of the nonexempt property they own. The guidelines that determine what is and is not exempt property under Chapter 13 are more flexible than other forms of bankruptcy, so a borrower may, in fact, have very little nonexempt property. If, for instance, a borrower carries $50,000 in credit card debt and also owns nonexempt property valued at $20,000, they may expect to repay roughly $20,000 of their credit card debt and potentially discharge the rest.
Protecting your future
Bankruptcy is rarely an easy process for anyone, but often the strains are social and emotional strains, rather than practical complications. If you believe that Chapter 13 offers the relief that you need, do not hesitate to use strong legal resources and guidance to understand your options and choose a path back to solid financial footing.