You can address credit card debt through Chapter 13 bankruptcy, but it’s not entirely about forgiving everything you owe. Chapter 13 allows you to restructure and repay your debts over three to five years.
Unlike Chapter 7, which often leads to liquidating assets, Chapter 13 helps you keep your property while you pay off debts. By the end of your repayment plan, it’s possible to discharge remaining unsecured debts like credit cards, meaning you won’t have to pay them in full.
However, Chapter 13 requires consistent income to make payments feasible.
Eligibility requirements
To qualify for Chapter 13 bankruptcy, you need to meet specific criteria. Here’s what to consider:
- Income stability: You must have a regular income to support the repayment plan.
- Debt limits: Your total secured and unsecured debts should not exceed $2.75 million.
- Credit counseling: Completing a credit counseling session is mandatory.
- Prior discharges: You shouldn’t have received a Chapter 13 discharge in the last two years.
These requirements help the court ensure you can fulfill the repayment plan. Unlike Chapter 7, which is typically for those with lower income and fewer assets, Chapter 13 is suited for individuals with steady earnings who want to keep their assets.
How does Chapter 13 address different types of debt?
Chapter 13 bankruptcy deals with debts differently based on their type. Here’s a breakdown:
- Priority debt: This includes obligations that aren’t discharged, such as taxes and child support. Debtors must pay these in full under the repayment plan.
- Secured debt: This includes assets used as collateral, such as homes and vehicles. You must continue making regular payments and catch up on any past-due amounts.
- Unsecured debt: Credit card debt, medical bills and personal loans are typical examples. Depending on your plan and disposable income, you might not have to pay everything you owe.
It’s essential to note that filing for bankruptcy lowers your credit score and typically remains on your credit report for seven years. However, many people benefit from taking tangible steps to reduce their debt and can start rebuilding their credit within a few months.
It’s advisable to explore all debt relief options with the guidance of a knowledgeable bankruptcy attorney. A skilled lawyer can help determine if Chapter 13 is the right choice for your financial situation.
