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Chapter 13 bankruptcy can help you get back on your feet

It doesn't take long for a small issue to become a huge financial mess. Maybe you experienced a sudden medical event, like a stroke or a heart attack. Perhaps you got into a car accident. Sometimes, the death of a loved one could call you out of town or leave you unable to deal with the daily details of life.

Whatever the reason, if you miss a few payments to your mortgage, credit cards or other financial debt, you could find yourself in a really dangerous situation.

Once you fall behind, it can be very hard to get things under control again. When you add the amount of the missed payments to accrued interest and all of the fees associated with missed payments, overdrafts or even exceeding the maximum balance of a line of credit, you may not be able to make minimum payments.

Soon enough, creditors are calling, and the potential for a lawsuit looms. You could even find yourself facing foreclosure.

What is Chapter 13 bankruptcy?

Unlike Chapter 7 bankruptcy, which helps those with lower income levels, Chapter 13 bankruptcy relief is available to most people. It's sometimes called "a wage earner's plan." That nickname really explains what Chapter 13 offers. It's a structured plan that allows a person in debt with steady income to rearrange the debt and possibly reduce payments to manageable amounts.

The individual filing for bankruptcy proposes a repayment plan that works with his or her budget. Typically, the person will pay on the plan for either three or five years, depending on income level and other circumstances. As long as you make the payments as planned, collections activity on the amount should cease. Even better, the bankruptcy will likely discharge remaining amounts owed on certain debts after all the payments are made.

How Chapter 13 helps

It may seem like a lot of work creating a repayment plan, sitting in on meetings with creditors and going to court just to keep paying on the same debts. However, the amount you'll pay will be more reasonable. There will also be a definite end in sight. Whether it's in three or five years, you'll know you'll be free of those outstanding debts, with the exception of secured debts (like your mortgage) or non-dischargeable debts, like student loans.

Filing for Chapter 13 bankruptcy also provides immediate relief from collection activity. That can include halting pending lawsuits from unhappy creditors and the end of harassing phone calls at home and at work. Chapter 13 also helps you better understand how to balance your budget and create payments that you can maintain. That means after your discharge, you'll stand a better chance of keeping your financial situation manageable.

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