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Bankruptcy Help For Everyday People

How familiar are you with Chapter 13 bankruptcy?

While many people are familiar with at least some of the basics of Chapter 7, its personal bankruptcy counterpart -- Chapter 13 -- often remains a complete mystery. Indeed, it's not uncommon for people to confuse Chapter 13 with Chapter 11, or to have never even heard of it.

This, of course, is unfortunate as Chapter 13 bankruptcy can prove to be a very viable avenue through which those individuals who earn a regular income can secure much-needed debt relief. In recognition of this fact, today's post, the first in a series, will start taking a closer look at how exactly Chapter 13 works.

What is Chapter 13 bankruptcy?

Chapter 13 bankruptcy is a process through which an individual with a regular income devises a plan to repay a portion or the entirety of their debts. Specifically, Chapter 13 plans call for regular installment payments to be made to a bankruptcy trustee over a three to five year period with the money being distributed among creditors.

What determines whether the Chapter 13 repayment plan is as short as three years or as long as five years?    

In general, if the person earns a monthly income that is greater than a predetermined state median, the plan must typically last for five years. Conversely, if the person earns a monthly income that is less than a predetermined state median, the plan will typically last for three years (absent a court approval of a longer period "for cause.").

What are some of the advantages of filing for Chapter 13?

Once a Chapter 13 repayment plan is in effect, creditors won't be able to continue or initiate collection efforts, and the individual debtor will no longer have to deal with them in any capacity as all payments to creditors are made by the trustee.

Perhaps more significantly, filing for Chapter 13 will bring foreclosure proceedings to an immediate halt and give the individual debtor the chance to catch up on their past due mortgage payments over the life of the repayment plan.

We will continue this discussion in future posts, exploring the eligibility requirements that must be met in order to qualify for Chapter 13.

In the meantime, please consider speaking with an experienced legal professional if you would like to learn more about the fresh start offered by either Chapter 7 or Chapter 13. 

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