Each year, millions of Americans end up in bankruptcy court, seeking a no-nonsense alternative that will allow them a second chance at a prosperous financial future. Many of these people are not unemployed, underemployed, or unable to work. More and more of those individuals petitioning for bankruptcy are hard-working Americans with full-time jobs, people who have gotten so deep into the cycle of debt that there often appears to be no way out.
Also known as Wage Earner's Bankruptcy, Chapter 13 is a form of bankruptcy that's essentially a debt restructuring program that may take the individual three to five years to complete. Unlike a Chapter 7 filing, you retain ownership rights to all your property and assets of value, and your items can not be sold at auction in order to satisfy outstanding debts. However, while Chapter 7 offers the option of debts being "forgiven" once it's proven you have no means of repaying them, Chapter 13 requires you to stick with the program until your debts are repaid.
One of the reasons so many Americans find themselves struggling with the burden of unmanageable debt is that credit card companies and other lenders are in the business of turning a profit when you're unable to make payments on time. If you're unable to make a payment on an outstanding bill, there are often hefty interest charges, as well as late fees and other penalties. Over the course of a year or so, these add up, making your obligation seemingly more impossible to fulfill. In the meantime, your inability to make timely payments may be trashing your credit rating, and causing you to receive phone calls from your creditors at all hours of the day, even at your place of business.
Many find the worst consequence of unmanageable debt to be the psychological effects, as creditors can push you over the edge after so many phone calls and collection letters. It is easy to feel alone, overwhelmed, and as if there are no solutions in sight. The decision to consult a lawyer and file a Chapter 13 bankruptcy petition is the first step in getting the helping hand you need to set your life back on a positive track.
If your petition is approved by the bankruptcy court, one of the first things that will happen is that the court will appoint a trustee to help you get your finances back on track. You'll only qualify for Chapter 13 if you are employed full-time and meet certain income requirements, so it's essential to retain a lawyer before pursuing this process, as compared to downloading generic forms from the internet.
Each paycheck you receive will go to the court's trustee, who will give you a portion of your earnings to cover living expenses and discretionary income. The rest of your earnings will be put towards making payments to your creditors. In return, the trustee will negotiate with creditors to lower your outstanding balances, put a freeze on interest rates, eliminate late payments, and make it more feasible for you to deal with your debt within a three to five year period.
Consistency is key to success with a Chapter 13 petition. Unless you are injured, lose a loved one, or are unemployed for an extended period of time, you're expected to follow through on your commitments. If all goes well, at the end of the three-to-five-year period, your debts will be repaid and you will again be able to start building your credit. It is certainly not the answer for everyone dealing with debt, and is not a short-term solution, but Chapter 13 has helped bring a sense of stability and prosperity to many struggling American families.