CHAPTER 13 BANKRUPTCY
Chapter 13 bankruptcy is frequently called a reorganization bankruptcy. In a chapter 13 bankruptcy, debtors are permitted to keep all of their assets, as long as they can continue making regular payments on the specific loans that may secure those assets.
Generally, chapter 13 is preferred by people with overwhelming debt who have a valuable asset that they want to keep, such as a home or automobile. Chapter 7 exemptions do not entirely cover that. This is possible under Chapter 13 because the debtor proposes a plan to pay back his or her creditors over three to five years. During this time, debtors can make up any overdue payments on their assets. They can also pay into the plan the equivalent value of any non-exempt assets.
Since a debtor’s plan will usually require regular monthly payments, Chapter 13 is typically only appropriate for an individual debtor who has a steady income source. At a bankruptcy confirmation hearing, the court either approves or disapproves of the proposed plan. The approval (or disapproval) depends on whether the proposed plan meets the requirements for confirmation according to the Bankruptcy Code.
Chapter 13 is quite a different animal than Chapter 7 bankruptcy. Chapter 13 debtors usually remain in possession of the property of the estate. They make payments to their creditors through the trustee based on their anticipated income over the plan’s life. Unlike Chapter 7 bankruptcy, debtors do not receive an immediate discharge of their debts. The bankruptcy filer must complete the payments spelled out in the plan before any release is granted. The debtor is protected from garnishments, lawsuits, and other actions from creditors while the plan is in effect.
Advantages of Filing Chapter 13
The advantages of a Chapter 13 bankruptcy include:
- The debtors’ assets are not sold to pay the debts
- A chapter 13 filing can halt a foreclosure proceeding, and debtors can keep their homes by paying the arrearages through the pre-established plan
- Chapter 13 can be dismissed or even converted to a Chapter 7 filing at any time the debtor chooses
- You can file for chapter 13 in a shorter time frame (four years) after filing a Chapter 7 bankruptcy
Disadvantages of filing chapter 13
The list of disadvantages of filing Chapter 13 bankruptcy include these:
- The debtor must pay monthly for three to five years to repay either a portion or all of the debts, depending on the equity in assets and the debtor’s income
- A discharge is not granted until the five year period is satisfied and all payments have been made.
- There are established debt limitations
- Credit repair may be delayed, depending on the length of the plan.
Is Chapter 13 Bankruptcy Right for Me?
The best way to find out if you are the right candidate for Chapter 13 bankruptcy is to discuss your unique situation with an experienced bankruptcy attorney. When you schedule a consultation with a lawyer, you’ll be able to get helpful advice and learn your options. For more information, contact a bankruptcy attorney in your local area.