Chapter 13 bankruptcy offers a possible solution for people who have suffered a temporary interruption of income or are facing financial trouble because of large, but temporary expenses. For example, someone with stable income and assets to protect may be knocked off course by a period of unemployment. Alternatively, a person with stable income, a home, a nice car, and other property may face a medical crisis and end up with a pile of bills that do not fit in the budget.
A Chapter 13 repayment plan allows the filer to repay past due balances over time, while making current payments on mortgages, car loans, and other debts. As long as plan payments are current, there is no collection activity on those past-due amounts. Late fees on those balances stop accruing, and in most cases, the interest rate on debt may even be lowered. At the end of the plan, some remaining unsecured debt may be discharged and assets that might be at risk in a Chapter 7 case are protected.
A couple of months ago, I wrote and warned against gutting retirement accounts. However, the pandemic appears to be pushing many Americans to do just that. 27% of respondents to