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Reorganizing debts with Chapter 13 bankruptcy

Chapter 7 bankruptcy is a popular option for people who are ready to discharge their debts and move forward with their lives. Unfortunately, not everyone qualifies for this process. Individuals must earn less than the median California income to file for Chapter 7, which leaves many people still in desperate need of debt relief. For these people, Chapter 13 bankruptcy can be an excellent option.

Unlike a liquidation bankruptcy -- Chapter 7 -- Chapter 13 is a reorganization of debts. The plus side of this is that most people can keep their property rather than having it sold off to settle debts. Instead, a person will create a repayment plan for court approval that generally spans a period of about three to five years. Even if their income was sufficient to qualify for Chapter 13, it must also be regular and high enough to support a repayment plan of this length.

Chapter 13 does not require that a person repay every last one of his or her debts. Instead, it refocuses repayment on priority debts, which are things like back child support payments, owed taxes and more. Additionally, secured debts like mortgage and car payments are prioritized over unsecured debts. Any disposable income a person has leftover after paying towards their secured debts will ultimately go toward those unsecured debts.

The word "bankruptcy" can feel scary, but it is hardly more frightening than living a life drowning in debt and dodging harassing phone calls from creditors. Even those who earn a relatively good living in California can find themselves in a situation that they cannot climb out of. Chapter 13 bankruptcy can help these individuals construct a better financial future for themselves.

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