When you seek to file for bankruptcy protection, you have options in the different types of bankruptcy to file. One of those options is Chapter 13, which is known as the wage earners plan because instead of having the court remove all your debt, you create a repayment plan to pay back your debts within your budget.
Chapter 13 has many advantages over other options because of the repayment aspect.
Protection for co-signers
The U.S. Courts explains that Chapter 13 includes some protection for people who co-signed loans for you or who are third-parties to your debt. It can remove their liability and prevent creditors from trying to collect from them.
Because you create a payment plan that fits your budget and extends through three to five years, you can likely lower your payments. It will be affordable for you regardless. If you do not completely pay a debt through the plan, the court will forgive it as long as it is not a debt that you cannot discharge in bankruptcy.
While any bankruptcy will stop the foreclosure process due to the automatic stay, Chapter 13 gives you the chance to also save your home. You can work your mortgage into your repayment plan, which can allow you to catch up on back payments and get on top of things to bring your home out of foreclosure. Of course, you must still make your regular payments throughout the process to avoid further issues.
Learn to budget
Since Chapter 13 focuses on your repayment plan, it can help you learn how to properly budget once the court discharges your bankruptcy. You will work with the trustee to create your plan, which will teach you about how to figure out what you can afford based on your expenses and income.