According to the United States courts, Americans and U.S. businesses filed 682,363 bankruptcies in the year ending June 30, 2020. The total number of bankruptcies fell steadily from 2016 to 2019, down from 819,159 to 773,361 filings, before plummeting more than 90,000 cases in 2020. Of these 682,363 filings, Chapter 13 bankruptcies were the second most common type with 233,644. If you’re considering filing bankruptcy in North Carolina, you should know how Chapter 13 bankruptcy works.
Differentiating between Chapter 13 and Chapter 7 bankruptcy
In general, most Americans file bankruptcy under Chapter 7 or Chapter 13, respectively. The former, which is for people who don’t earn a regular income, involves selling assets to pay creditors. Chapter 13 bankruptcy keeps your assets intact in exchange for creating a repayment plan to satisfy creditors.
Under Chapter 13, you can expect to make payments for three to five years. You’re legally obligated to send on-time payments to creditors after creating your court-mandated payment plan. Failing to do so can result in your assets getting seized to satisfy creditors.
Where does discharge come in?
Courts sometimes reward debtors who stay true to their payment schedules by discharging their debts. Although discharge only applies to unsecured debts, or debts without collateral, you could have all of your unsecured debts discharged after satisfying your three-to-five-year payment plan.
In addition to satisfying this payment schedule, you must meet three other discharge eligibility requirements:
- Taking a court-approved financial management course
- Not receiving a discharge in any other cases over the past two years
- Satisfying all court-ordered alimony, child support or domestic support payments
What debts aren’t covered by discharge?
Fortunately, U.S. law outlines fewer discharge exceptions for Chapter 13 bankruptcies than for Chapter 7 filings. Some exceptions to Chapter 13 discharges include student loans, alimony, court fees from criminal charges, secured debts and drunk driving-related debts.
If you’re in a tough financial situation and don’t know what to do, ask an experienced personal bankruptcy attorney for assistance. They may explain your options and guide you through the filing process.