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How will I know if filing for Chapter 13 is the right thing to do

When consumers consider filing petitions for bankruptcy, most — around 70 percent — wind up filing for Chapter 7 bankruptcy protection. However, for the remaining 30 percent, Chapter 13 is the better solution to fiscal instability.

Opting for a Chapter 13 reorganization instead of a quick-fix Chapter 7 takes commitment and dedication to paying down debts. You will also be under the oversight of bankruptcy trustees and the court itself for as long as five years.

Many consumers want this unseemly-appearing phase of their lives to be over with well before the five-year anniversary. But if saving the family home is a priority, you may have to persevere.

Consumers who file under Chapter 13 have to be realistic about their finances for the next half-decade. They will be living on an austere and stringent budget that leaves little money left for any extras. But trustees and bankruptcy court judges do not abandon their humanity when they assume their roles in bankruptcy proceedings.

If you file for Chapter 13 debt reorganization, but due to circumstances out of your control — a serious illness, job loss or other catastrophe that leaves you on even shakier financial ground — they will work with you to meet your commitments.

Data from the U.S. Bankruptcy Courts from a single year indicates that of the 240,000 Chapter 13 cases that closed, only 22 percent were completed. The remainder got dismissed. Chapter 13 can prove to be unsustainable for many consumers who are considered to be "financially fragile," i.e., cycling repeatedly through jobs and lay-offs during the reorganization period.

If your case winds up being converted to a Chapter 7, you risk having your assets sold off. Cases dismissed by the court before completion leaves consumers stuck owing their original debts, plus retroactive interest.

It can be impossible to know which way to turn when faced with a financial crisis. Learning about all available options is empowering and can allow you to make the best possible decision.

Source: creditcards.com, "Chapter 13 bankruptcy: How it works," Susan Ladika, accessed June 30, 2017

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  • MCBA | Maricopa County Bar Association
  • State Bar of Arizona
  • ABA | American bar Association | Defending Liberty Pursuing Justice
  • Oregon State bar
  • NACBA | National Association of Consumer Bankruptcy Attorneys
  • NACA | National Association of Consumer Advocates
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