Sometimes things happen to us in life that we really have no control over. One of these things, off the top of my head, is getting laid off. It may have been nothing you did wrong. Maybe the company you worked for was just downsizing. So you lost your job? Now what happens?
Hopefully, you’ll be one of the really lucky people in the world and get another equal paying job immediately. But what if you don’t? What if you’re on unemployment for six months? What if during this time you’ve not been able to make any payments on your home mortgage, and soon you know foreclosure is coming? Well, if you still can’t find any kind of job that allows you to make your mortgage payment, then you would probably want to file Chapter 7 bankruptcy, wipe out your mortgage debt, give back your house, and move on with life. But what if you do get another worthy job just in time to stop foreclosure? Well, this is when it would be a good idea to file for Chapter 13 Bankruptcy. You see, Chapter 13 is a form of bankruptcy where you pay a trustee one payments a month for given 36-60 months in an attempt to catch up on any mortgage payments you’re behind. Of course it doesn’t only work for mortgage payments. If you owed thousands in back taxes and the IRS was coming for you, Chapter 13 could provide you some respite as well. You would have 36-60 months to pay off your taxes. One of the best things about Chapter 13 is that you usually only have one payment to make on debt each month. All of your payment goes to one place, and the trustee then distributes it as necessary.
Of course, during the pendency of your Chapter 13, none of your creditors are allowed to harass you, collect money from you, or proceed with legal actions against you. All we have to hope for now is that you have enough income to both pay your regular mortgage payment (or whatever you’re making payments for) AND catch up for those months when you got behind. Sixty months is a long time. Generally, if you were able to get another well paying job, you should be able to catch up your payments in the Chapter 13. At the end, when all the money has been paid back, you come out clean. Your mortgage is now back to being current, or your taxes are now paid off (or I suppose it could be both). Now, assuming you continue in that new job, you can get back with a normal life.
So, when is it a good idea to file Chapter 13? When you are behind on payments on something you want to keep (like a mortgage, or a car note, etc.) or need to pay back some taxes.
For more information on bankruptcy, see our bankruptcy page.