Even the most successful people can risk falling into insolvency. This may happen after a bad, large investment or a family business goes under. Whatever the reason, reorganizing debts may help individuals hold on to the current assets they have while repaying the debt. Debtors may even have the opportunity to pay less than the full total.
According to Credit Karma, Chapter 13 is the bankruptcy route that provides this option. Unlike the hard reset provided by Chapter 7 bankruptcy, it allows debtors to create a repayment plan. Chapter 13 bankruptcy does not treat all the debts with the same level of urgency. To determine how to treat each debt, the relevant court creates three categories and groups existing debts accordingly.
Debts supported by collateral may or may not require full repayment. Some examples of debts that fall into this category include a mortgage, RV loan or car loan. Whenever possible, consider selling some of these items to repay the loan.
Debts with no collateral tend to have much higher repayment fees, which help create payment problems. Courts prioritize these debts last of all. Common examples include medical bills, credit cards and personal loans.
As the name implies, these are debts that borrowers may have no choice but to repay. There are very few exceptions to this rule. Debts that fall into this category include federal taxes and child support.
Forbes estimates that the full process generally takes three to five years. Some people’s financial situations change and allow them to speed up the process.