Chapter 13 Bankruptcy: Interest-Free Repayment Plan?

Individuals or couples that are facing financial problems such as overwhelming debt on credit cards, inability to pay mortgage payments or car notes or those faced with a combination of debts may find Chapter 13 bankruptcy a good option. Unlike most Chapter 7 bankruptcy fee plans, those filing Chapter 13 retain their possessions and do not have to worry about loss of assets. They will work to both stay current and catch up with payments through a court approved repayment plan.

Interest Free

One of the biggest problems for most people in debt is not paying off the principal of the loan but paying off the combination of the principal and the interest. For this reason debts that are approved through the court in a Chapter 13 bankruptcy are basically rolled into one large debt and the debtor pays a lump sum amount per month, similar to a consolidation loan. However, this amount is repaid interest free, allowing the individual to have a reasonable and predictable repayment plan to be debt free within three to five years. These debts can also include student loan debt and any other unsecured types of debts.

Qualifying for Chapter 13 Bankruptcy

Since the individual or individuals filing for Chapter 13 bankruptcy retain possession of all items through the bankruptcy, the court requires certain conditions be met. A means test is done to ensure that the debtor qualifies and that there is a high probability that the debts can be repaid via the interest free repayment schedule.

Individuals will have to have a current income that they can demonstrate will cover the cost of the monthly repayment amount set out in the bankruptcy order as well as stay current on any other debts and monthly living costs that are reoccurring. For example, the bankruptcy would include a plan to catch up on missed mortgage payments, however the individual will also have to show sufficient income to make those missed payments as well as the current monthly mortgage payment. The same applies to all other debts through Chapter 13 bankruptcy.

Attorney Assistance

It is critical to talk to an experienced bankruptcy attorney before filing for Chapter 13 bankruptcy. Not only will the attorney know the federal and state laws for your area but he or she can also advise you of exemptions. Although in Chapter 13 bankruptcy most debts will have to be included in the filing you do have options, so legal advice is important.