Chapter 13 Bankruptcy

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By: LawInfo

Published: 11/2008

Sometimes an individual with a regular income cannot make ends meet. His or her debts may be overwhelming and grossly outpace his or her earnings. For these individuals, Chapter 13 bankruptcy protection is sometimes the best option.

What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy protection allows individuals with regular income to develop a plan to repay their debts over a period of time. The repayment plan is usually for a period of three to five years. Bankruptcy law prohibits a plan from being drafted for more than five years.

An individual is eligible for Chapter 13 protection if his or her debts meet certain eligibility requirements. Currently those amounts are $336,900 in unsecured debts and $1,010,650 in secured debts. The amounts are tied to the consumer price index and do change from time to time.

How Does Chapter 13 Bankruptcy Work?

Prior to filing for Chapter 13, individuals must make sure that they have received the requisite credit counseling that is required for individual bankruptcies. There are exceptions to this rule if there is an emergency situation.

When filing for Chapter 13 bankruptcy, the individual must include all of the papers required by the court and all information about his or her income, expenses, debts and assets. Previous tax returns and evidence of credit counseling will also be required as will all applicable filing and court fees.

After all of the papers have been filed and the fees paid, the court will appoint an impartial trustee to oversee the case. This trustee will oversee everything related to the case from the evaluation of the information provided by the debtor to the eventual disbursement of payments to creditors pursuant to the court approved payment plan.

What are the Advantages to Chapter 13 Bankruptcy?

There are several advantages to filing for Chapter 13 bankruptcy if your debt to income ratio makes it impossible to meet your debt obligations. First, once you file for Chapter 13 bankruptcy protection your creditors should stop most collection efforts. There are only limited collection efforts that may continue pursuant to federal bankruptcy law.

Chapter 13 can be used to protect a home from foreclosure. The filing for Chapter 13 protection will temporarily stop the foreclosure from proceeding and allow the debtor to become current on his or her mortgage payments over a defined period of time.

Another advantage to a Chapter 13 bankruptcy is that it puts the debtor back in control. It is the debtor who proposes the repayment plan to the court. While the creditors have the right to object to the plan and then plan needs to be approved by a bankruptcy judge, it is the debtor who makes the initial proposal and who must agree to any revisions to that proposal.

A Chapter 13 discharge is a complicated legal matter. However, when the matter is discharged the debtor is free from all obligations to the creditors involved in the bankruptcy proceeding and can begin rebuilding his or her credit score and financial life.