Chapter 13 Bankruptcy is a Powerful Tool

Chapter 13 Bankruptcy is a Powerful Tool
March 17 13:53 2017 Print This Article

Bankruptcy is a subject most people would probably prefer to avoid, but for some, it can be an important and powerful way to get a handle on out-of-control finances. The average person is likely unaware of the legal details of exactly what a bankruptcy case is or how it works, which means they probably don’t know how useful it can be even if it causes temporary damage to their credit.

One of the most flexible and effective types of bankruptcy is called a Chapter 13, which is the individual equivalent of the common Chapter 11 cases filed by large companies that make the news occasionally.

How Does It Work?

Many believe that bankruptcy means they have to sell off everything they own and start over. This is not how the process works. Bankruptcy laws are under the jurisdiction of the federal government and are established by the Constitution to be uniform throughout the United States. This means when an individual files bankruptcy, it is enforced by the federal courts which have nationwide jurisdiction.

Image result for Chapter 13 Bankruptcy is a Powerful ToolA Chapter 13 case is not a liquidation, where the petitioner sells everything, pays what they can and starts again. It is a re-organization. It allows the petitioner time and opportunity to structure a viable plan to negotiate a repayment plan and have that plan ratified by the court.

Why Is It Powerful?

The main benefit to a bankruptcy filing, as many corporate financial experts will tell you, is that filing under Chapter 13 establishes an “automatic stay” on all legal action against the petitioner. No case, no seizure of property, no claim can be advanced against a defendant who is in the process of declaring bankruptcy. During this time, a petitioner will have the chance to work with their creditors and sort things out without being overwhelmed by dozens of claims and lawsuits.

So let’s say an individual spends a lot of time at a site like, finds a lot of great deals, but overspends. Now their credit card company (or companies) want their money and the borrower can’t keep up their payments. If they file a bankruptcy case, they can stop all the claims and collection activity and then negotiate a payment plan with their creditors and in some cases have up to five years to pay.

What Are The Consequences?

Bankruptcy can leave an enormous black mark on your credit. Student loans, alimony and child support are exempt from any relief granted by a bankruptcy judgment. There can also be restrictions on your ability to file for a second bankruptcy which depend on how and why the first case was filed. It is a big step, and it requires considerable reflection and professional advice from an attorney and an accountant. Very often, repayment plans can be negotiated without filing for Chapter 13 protection, and if this is a possibility, it may sometimes be recommended by your professional advisor.

It is very easy to get into debt in an economy with so many financing options. The bankruptcy laws are there to help people and companies that have accumulated too much debt and later find they don’t have the capacity to pay it all off. It is an option to consider if you find yourself in similar circumstances.


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Demarco Gonzalez
Demarco Gonzalez

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