Filing bankruptcy in Kentucky is the last resort for most homeowners, but it can also be the first step toward a brighter financial future. Although you may complete chapter 7 in a matter of months, chapter 13 has several long-term economic advantages that may make it more appealing.
According to the United States Courts, Chapter 13 of the Bankruptcy Code helps individuals with steady income repay overwhelming debt, entirely or in part, with an installment plan that lasts three to five years.
Make affordable payments
Your budget determines the amount of your monthly payment. It’s a combination of your actual monthly expenses, IRS requirements and standards of the chapter 13 trustee assigned to your case, also called discretionary income. It allows you to make one payment for all your debts and only pay what you can afford.
Even if your lender began the foreclosure process before you filed for bankruptcy and set the sale date, the automatic stay puts it on pause. You can bundle your past due monthly mortgage amount into the repayment plan as long as you file before the sale date. Having three to five years to pay back the arrearages can prevent foreclosure. Depending on your situation, you may be able to remove second or higher mortgages, known as lien stripping. The court may discharge them with other remaining debts at the end of your repayment period.
When you file chapter 13, your trustee may offer a financial management course not available with chapter 7 cases. As a result of setting the budget for the repayment plan, you likely analyzed your finances, possibly for the first time. This helps you understand where your money goes and how to manage it better going forward. Chapter 13 only stays on your credit for seven years versus the ten years for liquidation bankruptcy, and you can begin rebuilding your credit almost immediately upon filing.