Just like any other major financial maneuver, declaring personal bankruptcy is a decision that should be evaluated carefully. However, people may get to the point that they simply need a strategy to get out of debt. For those who qualify, Chapter 13 bankruptcy might be the right option.
In order to declare Chapter 13, a person must have regular income. This is because this type of bankruptcy includes a repayment plan that allows consumers to pay creditors back over the course of three to five years. Debt payments are made according to a court-approved plan, which might come in addition to any other ongoing expenses. Once the payment-plan term has passed, remaining debts could be discharged.
Like all types of bankruptcy, choosing to file Chapter 13 provides immediate relief from creditors. An immediate stay is put into place when bankruptcy is declared, which means that creditors can’t continue collection efforts for individuals grappling with unsustainable debt.
One important feature of Chapter 13 is that the person who files is generally able to keep important property, such as a home or vehicle. For people who have a family to take care of, this aspect of bankruptcy might be very important.
The reality is that Chapter 13 bankruptcy isn't going to meet the needs of everyone who needs to get out from underneath significant amounts of debt. For example, some people may not meet the income requirements for this bankruptcy option. As such, it may be helpful to speak with an attorney who knows what other options might be viable.
Source: BusinessDayOnline.com, "How to know when to declare bankruptcy," Feb. 10, 2014