People often file for personal bankruptcy because they are desperately in need of a reprieve from aggressive collection activity. They may dread answering the phone or worry that every knock at the door is a process server. They could also already face a pending lawsuit brought by an unhappy creditor. Lawsuits can lead to wage garnishment or property liens and demand immediate action.
Bankruptcy is the solution for many people overwhelmed by aggressive collection efforts. As soon as someone files, an automatic stay will prevent harassing phone calls and temporarily halt even lawsuits brought by creditors. However, they have to follow certain court procedures to complete the bankruptcy process and discharge the balance owed on their unsecured debts.
Chapter 7 bankruptcy often appeals to people because of how quickly it leads to a discharge. However, not everyone qualifies for Chapter 7 bankruptcy, as there are strict income limits. Beyond that, there may be property you want to protect that you could not exempt in a Chapter 7 filing. If you move forward with Chapter 13 proceedings, how long will it take to receive a discharge?
You need to make years of payments first
Chapter 13 is a relatively lengthy bankruptcy process. Instead of liquidating or selling off some of your property to pay what you can before your discharge, you have to rework your budget and make monthly payments to the courts.
Repayment plans in Chapter 13 bankruptcies typically last for at least three years, sometimes longer. It is only after you have complete all of the required payments and have the courts review and approve your filing that you will finally receive your discharge.
The longer timeline reduces credit bureau reporting
Although you will spend years making payments in a Chapter 13 bankruptcy, it will typically affect your credit roughly as long as a Chapter 7 filing will.
A Chapter 7 bankruptcy will be on your credit report for 10 years after your discharge, while a Chapter 13 Bankruptcy will only show up for seven years after your discharge. The difference in timing evens out in the long run.
Understanding the timeline for Chapter 13 bankruptcy and the unique rules that apply to this valuable form of financial protection can help those trying to regain control over their personal debt.