Depending on the amount of your debt and your ability to make payments, you should be able to pay off your debt within the 3 to 5 years. Nevertheless, it's important to understand what this type of bankruptcy entails. But before you file that paperwork with your lawyers, here are 4 things you should think about.
Unlike other kinds of bankruptcy, Chapter 13 requires you to pay back certain debts that you owe. You may be forgiven late fees and interest requirements, but the payments can still be rather brutal, and if you're not prepared to live on a strict budget for the next 3–5 years, it can be hard to make it to the other side with your sanity intact.
When you file for Chapter 13, you are, in effect, proposing a payment plan. You will make monthly payments to the bankruptcy trustee over a certain period of time, usually 2 to 5 years. This type of bankruptcy is known as a reorganization bankruptcy, and it is suitable for those who have non-exempt property they want to keep.
In a chapter thirteen the debtor's unsecured debt is handled very differently than in chapter seven. Debtor has to pay a portion of unsecured debt. The debtor might be required to pay anywhere from ten to one hundred percent of the unsecured debt over a period of three to five years. A formula determines the actual percentage of unsecured debt that is going to be paid off and the period over which the amount is going to be paid. There are two basic formulas that determine how much is going to be paid out. One formula looks at how much equity you have in your property, how much equity you have in your property that is the amount that you have to pay. If you have $30,000 of equity in your house, and you're filing a chapter 13 you're going to have to actually pay back at least $30,000 to these creditors. The reasoning behind this formula is simple. If you have $30,000 in your house you have two options, it's either you're going to sell it and give creditors the money, or you keep the house but you the creditors $30,000 within that three to five years. Now, even if you don't have that much equity, there's another formula that can be looked at and that is your income over your expense.
Nothing in life is free, not even bankruptcy. Fortunately, the cost of bankruptcy is affordable when you think about the fact that you can often reduce and eliminate large amounts of debt because of it. This means filing for bankruptcy often pays for itself. The bad news is that you will have to pay your attorney and the court filing fees out of pocket before you can get any relief.