While many people use the term bankruptcy in a generic sense, there are a couple of versions of consumer bankruptcy .  Chapter 7 and Chapter 13 are two examples of types of bankruptcy.  While Chapter 7 is the form of bankruptcy that most people think of when they think bankruptcy this may not be the solution for them.

Chapter 13 is another type bankruptcy and in many circumstances is a better option. When people file Chapter 13 they’re required to make payments on the debt. The payments are made to the Bankruptcy Trustee. The bankruptcy trustee takes the payment and pays your creditors a share of the debt owed to them. The percentage of the debt that gets paid to them depends on factors like if the debt is secured or unsecured or if the debt a part of a mortgage.

Is Chapter 13 Right For You

The main reason a person files chapter 13 is that they make to much money to qualify for chapter 7. Although there are many other reasons the following is a short list of reasons.

• You are facing a foreclosure on your home
• The time since chapter 7 has not passed yet

• Property in a debtor’s estate cannot be protected from liquidation by applicable bankruptcy exemptions.

• Chapter 13 is used to protect a personal residence with equity that exceeds the homestead exemptions or other applicable exemptions.

• The financial obligations causing financial hardship are priority unsecured debts that are non-dischargeable in bankruptcy.

Chapter 13 Bankruptcy and Foreclosure

Once you file a bankruptcy all foreclosure actions against your home must stop. Unlike a chapter 7, which requires that you’re current before you file, a chapter 13 is different. The filing of the case allows you to take all of the past due amount and roll it into a payment plan. The amount of the past due obligation is paid out monthly from the chapter 13 plan payment. This allows you to spread the past due amount mortgage amount over the five year life of the plan.