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Protect yourself with Chapter 13 bankruptcy

The lingering effects of the Great Recession are still impacting individuals across California. Following the end of the mortgage and housing crisis, many consumers had little choice but to borrow money. As consumer debt continues to grow, some people might need to consider the potential benefits of filing for Chapter 13 bankruptcy.

Many people lost their jobs or ended up stuck in low-wage positions during the recession that started in 2007. Once the economy looked like it was bouncing back, most of those affected by the financial crisis did their best to secure new employment so that they could pay off debts and bills. Unfortunately, even securing a better paying position could not protect some from overwhelming consumer debt. Things like auto loans, student loans and even credit card debt began to pile up quickly. Experts caution that these debts are usually out of necessity and not due to irresponsible spending habits.

It is possible that the next recession is on the horizon, and consumers who have significant amounts of consumer debt are at risk for losing the lives they worked so hard to build. Even a small economic downturn could result in job losses, foreclosures and delinquencies. Individuals who are in the lower half of wealth distribution are particularly at risk in this situation, as the average working-class household has $33,693 in debt.

While Chapter 7 bankruptcy might seem like an ideal option, it is only available to those who earn less than the average person in California. Many consumers who are in the bottom half of the state's wealth distribution still earn more than the average income, which means that they could pursue Chapter 13 bankruptcy. In this form of bankruptcy, a person must create a repayment plan that lasts anywhere from three to five years. Any remaining debt at the end of this time period will be discharged, which can give the filer an opportunity to rebuild his or her financial security.

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