As we have discussed before in this blog, Chapter 13 bankruptcy protection is one of the most popular forms of personal bankruptcy in the country. It is available for people struggling with debt who also have a regular income and debts below certain totals.
Chapter 13 generally shields your assets from creditors; instead of having to sell them to pay off creditors, you set up a repayment plan that lasts for three or five years. Once the plan ends, you will be clear of debt and ready to move on.
Most people in Nashville who file for Chapter 13 complete the process. However, it is possible to end your Chapter 13 plan early for one of two reasons: the ability to pay off your debts all at once, and financial hardship.
Good fortune can end bankruptcy early
Occasionally, people in Chapter 13 bankruptcy receive a windfall through an inheritance, lottery win and so on. The law allows someone in this position to pay off the balance of their debts and exit their bankruptcy plan ahead of schedule. Of course, these cases are fairly rare, and you probably cannot plan for something like this to happen to you.
More commonly, someone in Chapter 13 loses their job or otherwise experiences a large financial downturn. They can no longer afford their debt payments. In this case, the debtor may qualify for a Chapter 13 hardship discharge. However, before you can do this, unsecured creditors (those whose debts are not backed by collateral like a house or vehicle) must have received at least as much in payment as they would have had you filed for Chapter 7 bankruptcy instead.
It is important to know that exiting bankruptcy means losing its protections. Also, a hardship discharge does not get rid of your remaining debt. Creditors will be able to resume collection efforts like wage garnishment and frequent phone calls. So if you are considering a hardship discharge, discuss the implications with your bankruptcy attorney.