If a person has accrued an outstanding amount of debt and is struggling to find ways to handle that debt, there are options available to them for discharging debt. Chapter 13 bankruptcy is a proceeding that allows the debtor to reorganize his or her finances under court approval.
Chapter 13 bankruptcies, also referred to as “consolidation of your debt,” allow the debtor to submit a systematic, well organized plan to the courts to pay back part or all of his or her debt over the course of the next few years. Ultimately, Chapter 13 is designed to end with a discharge of debt.
One of the top reasons people opt for Chapter 13 bankruptcy is when they are unable to file for Chapter 7, or full bankruptcy, for any reason. This may include cases in which they have incurred debt from purposeful damage to property, from divorce or separation proceedings, from certain government fines, or if the discharge of those debts has been previously denied.
Another common reason debtors must file a Chapter 13 instead of a full bankruptcy is if they earn a wage that provides them with a certain amount of disposable income. If the debtor will be capable of paying back their debts given a certain amount of time and a fair payment plan, then they can file for Chapter 13.
By not filing for a full bankruptcy, debtors are able to retain ownership of their assets while they slowly begin to pay back the debt over time. Often times, the total amount that must be paid back can be reduced so that debtors are only required to pay back a part of the original debt.
If the terms of the consolidation of debt are met, the bankruptcy courts will discharge the debt. This means that all actions on the part of the debt collector to obtain more money from the debtor must cease. If the debtors Chapter 13 plan is dismissed, however, the bankruptcy is considered void, and the debt collectors may proceed through the normal legal processes to collect the rest of the debt.