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Not enough income to pay debts? Chapter 13 may help

If you have more debt than income, you may wonder which of your bills you should apply your money to each month. Falling behind on the mortgage of your Virginia home does not seem like an option, but creditors are becoming more and more aggressive in their attempt to collect the debts, and now you fear having your wages garnished, which will only make things worse. 

The good news is that Chapter 13 bankruptcy can resolve many of these types of circumstances. The Administrative Office of the U.S. Courts explains that because you have income, you may not have to liquidate all your assets in order to get rid of your overwhelming debt. Instead, your debt is reorganized so that you will make monthly payments that you can afford over the course of three to five years. At the end of the set period, the remainder of your debt will be discharged. The reorganization works very similarly to debt consolidation.

Your monthly payment is determined based on your income, living expenses, assets and the types of debt you have. You do not directly pay your creditors the amount that is determined in the bankruptcy. Instead, you send it to the bankruptcy trustee who is assigned to your case, and that person distributes the money to your creditors. Your creditors may not contact you after you have filed for Chapter 13 protection or at any time during the process. If one of your debts is a past-due mortgage, you will still be making your full mortgage payments, and the overdue amount will be caught up over the life of the bankruptcy. 

You are eligible to file for Chapter 13 if your unsecured and secured debts are lower than the minimum amount allowed. This amount changes, but is currently nearly $400,000 for unsecured debts, and over $1.1 million for secured debts. Although you may file if you are self-employed, or if you are operating an unincorporated business, a corporation or partnership is not eligible for this type of bankruptcy. If, in the last six months, you have had a bankruptcy petition dismissed because you did not comply with a court order or did not appear in court, you are not currently eligible to file for bankruptcy.

This information is general in nature and does not cover many of the details that are often relevant in filing for Chapter 13 bankruptcy. Therefore, it should not replace the advice of an attorney.

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