Before you sign the documents needed to file a Chapter 13 bankruptcy case, you must know what it is and how it works. Chapter 13 is a branch of bankruptcy, but it does not work the same as a Chapter 7 case. If you want debt-relief assistance through Chapter 13, it might be wise to know the following three facts before filing.
It Does Not Offer an Instant Discharge
The first thing to know about Chapter 13 is that it does not offer an instant discharge like Chapter 7. Chapter 7 instantly wipes out all your qualifying debts, leaving you with immediate relief. Chapter 13 does not do this. Instead, Chapter 13 requires a repayment plan. This plan requires that you repay most of your debt over time. The time allowed might be three years or five; it depends on your income and debts. Over time, you slowly catch up on your debts, leaving you with an improved financial position when you complete your case.
It Provides Instant Relief in a Different Way
While you will not receive an instant discharge of debt through Chapter 13, you will receive instant relief in another way. When you file either branch of bankruptcy, the court issues an automatic stay. The stay is a court order that stops all creditors from asking you for money. Your creditors cannot call you to bother you about payments or send you demand letters in the mail. They cannot contact you at all. The automatic stay provides relief to you for creditor harassment, and you will receive this benefit through Chapter 7 or Chapter 13.
It Helps in Ways that Chapter 7 Cannot
The last thing to know is that Chapter 13 helps people in ways that Chapter 7 cannot. Chapter 7 has limits on the financial relief it provides, as it only offers a discharge on qualifying debts. It does nothing for other debts. Chapter 13 helps with all debts. The repayment plan lets you repay all your debts over time, and it helps you stop repossessions or foreclosures. You cannot find this relief through a Chapter 7 case. Additionally, a court often discharges some debts at the end of a case if the person has balances on qualifying debts.
If you have questions about Chapter 13 bankruptcy, meet with a lawyer. A bankruptcy lawyer helps people decide if they should file and helps them file their cases.