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Chapter 13 bankruptcy: reorganizing your debts

You are lying awake at night worrying about your debts or refusing to answer when the phone rings. You are falling behind on major bills such as your mortgage, car payment or taxes, and you dread opening the mailbox because you know it will contain more warnings.

Maybe you have considered bankruptcy, but the embarrassment prevented you from fully investigating the possibility. You really want to be able to pay your bills, but you just can't make it work on your income.

Chapter 13 bankruptcy may be the solution to your overwhelming debt. Instead of the liquidation of your assets to pay back your creditors (as with Chapter 7 bankruptcy), Chapter 13 allows you to keep your property - including your home - and reorganize your debt.

How does it work?

A trustee will be assigned to your case, and that person will analyze your income to determine how much disposable revenue you have. You will then turn that amount over to the trustee who will disperse it to your creditors. Usually, a lower balance is negotiated for some of these unsecured loans, like credit cards and medical expenses.

Bankruptcy cannot discharge certain debts, such as student loans, child support and some taxes. Your attorney can discuss options for dealing with those bills.

How badly will it hurt?

A Chapter 13 bankruptcy can seem like a long process. In fact, the plan can take three to five years to complete because it involves making regular payments each month. You can't miss your payments, and you can't take on new debt. However, you will finally see a light at the end of the tunnel as your debt load begins to shrink.

In addition, if you complete the plan successfully, there will be a mark on your credit score for approximately 10 years. Nevertheless, because you chose Chapter 13 and made a good faith effort to pay your debts, lenders may look more favorably on you than if you had liquidated your assets through Chapter 7 bankruptcy.

How do I know if this is right for my circumstances?

Contacting an attorney for advice and direction is always a good decision. A Board Certified bankruptcy attorney will examine your situation and discuss with you the best options for your debt relief.

If you qualify for Chapter 13, your attorney will walk you through every step and make sure you understand the responsibilities and benefits involved. You may once again be able to sleep peacefully.

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