Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a form of bankruptcy relief typically available to individual debtors who have regular incomes and
property that they would like to protect from liquidation under
Chapter 7 bankruptcy. Chapter 13 bankruptcy is particularly valuable in that it may grant an individual the opportunity to save his or her home from
foreclosure. It involves a reorganization and repayment of
debt over time and under the protection of the bankruptcy court. In addition to protecting all of a debtor's assets, Chapter 13 bankruptcy has the unique advantage of protecting co-signers (who may otherwise be held accountable if a debtor files under Chapter 7).
How Chapter 13 Works
Chapter 13 bankruptcy, also known as a "wage earner's plan", allows individuals and spouses to file a repayment plan with bankruptcy courts so they can pay their debts to creditors over a designated period of time. The designated period of time is usually between three to five years. The repayment amount varies by individual, but will usually depend upon the filer's income, amount and types of debt owed, and the property that the filer owns. When you file for Chapter 13 bankruptcy, you will have to prove to the court that you currently generate enough income to maintain your repayment obligations. If your debts are considered to be too high, the court may not allow you to file for Chapter 13 bankruptcy.
Chapter 13 Timeline
After you enter into a repayment plan, you will usually have to make your first payment to your trustee 30 days after filing your petition. Your designated bankruptcy trustee will then disperse the payment amongst your creditors for you. You can arrange for your repayment to be taken directly out of your paycheck or may schedule other payment options. If you cannot maintain your repayment obligations for some reason, such as job loss, the bankruptcy trustee may amend your repayment plan. The discharge in a Chapter 13 bankruptcy case will come at the successful conclusion of the repayment plan, which may last 3 to 5 years.
Benefits of Chapter 13 Bankruptcy
There are several key advantages associated with Chapter 13 bankruptcy as opposed to Chapter 7 bankruptcy. Because it involves a reorganization of debt versus a liquidation of assets, all of a debtor's property will be protected. Co-signers will also be protected. A debtor may also be able to include and pay off certain debt that would not be addressed under Chapter 7, such as past due mortgage payments and penalties. The payment plan established in a Chapter 13 case is based off the debtor's income and expenses, meaning the payment will be affordable. Perhaps the most well-known advantage of Chapter 13 bankruptcy is its ability to stop foreclosure.
Chapter 13 and Foreclosure
One of the most important advantages of Chapter 13 bankruptcy is that it offers a debtor the opportunity to save his or her home from foreclosure. Filing the bankruptcy petition will place an automatic hold on foreclosure proceedings, and past due mortgage payments and penalties may be included in a Chapter 13 repayment plan. As long as the debtor remains current on these payments and future mortgage payments, he or she will likely be able to keep the property.
To learn more about Chapter 13 and how it may affect you, find a local bankruptcy lawyer.