The common person will have to borrow some money at one point in their lives to buy something that is too expensive for their current financial needs. This is why creditors exist as they allow people who don’t have huge amounts of money to purchase these big items. On the other hand, the common person will have to pay the creditors a specified sum monthly over the course of a couple of years. This is more manageable than suddenly having to pay a huge amount that the common person typically doesn’t have.
Protection of Debtors and Creditors
Unfortunately, debt and loans can become too out-of-hand and, regardless of reason, some debtors find themselves being unable to pay off their credits and loans on time. When people can no longer pay for all of their debts and loans, they have no choice but to file for bankruptcy.
Bankruptcy is a legal status wherein the person is incapable of paying of their debts to creditors. It is a law that protects the debtors as well as ensuring that the creditors will be paid to a sum that the debtor is capable of. Contrary to popular notion, bankruptcy doesn’t wipe away the debt magically; depending on the type, the debtor must pay the creditors a specific amount that is determined by the court while still leaving enough for the debtor to survive in the process.
Wage Earner’s Plan
What is Chapter 13 bankruptcy? It is a type of bankruptcy filing that allows the debtor to reschedule their payment plans. If the application is accepted, the debtor can negotiate to have their payment plan changes for another three to five years. As an intermediary or a trustee will be handling all proceedings, the law forbids the creditors from making collection efforts from the debtor.
In this kind of bankruptcy, the debtor will have the opportunity to save their homes, vehicles, and other assets. They are still required to pay their loans in full but they are given enough time to do so depending on their income. Unlike the Chapter 7 bankruptcy that liquidates all available assets and uses the money collected to pay off the debt, Chapter 13 bankruptcy will require the debtor to pay their creditors a monthly sum that is mandated by the court. As this is dependent on the debtor’s monthly income, the required sum can change depending on the status of the debtor’s cash flow.
Just like any bankruptcy claims, the debtor’s credit history will be heavily damaged as a result. However, it is better to file for bankruptcy now, clear of all your debts, and begin anew than to have creditors steadily harass you. Continuous late payments are worse for your credit history so it would be best to start fresh. The effects of bankruptcy are harsh and can be felt years after it is done. However, it is still a better alternative than not being able to pay off your debts. Chapter 13 bankruptcy exists to protect the debtor and creditors alike.