Bankruptcy Law Basics: Is a Chapter 13 a Good Choice?

Chapter 13 bankruptcy law allows individuals to repay their debts over time instead of discharging or eliminating the debts. Most importantly, chapter 13 bankruptcy law permits people to keep their property when they are in extreme financial trouble such as foreclosure or repossession. Thus, filing for chapter 13 is a good choice for people who need to save their property.

Chapter 13 Is a Good Idea: When People Qualify

The wage earner’s bankruptcy, commonly called chapter 13, is for individuals with regular income and disposable income. This means that people must have enough money to repay creditors—after all their monthly debts are paid. To be eligible, the U.S. Bankruptcy Court requires individuals to fail its means test. The test compares people’s income approximately 6 months before filing bankruptcy to their state’s median income for their household size. If they have money left over—considered disposable income—then they are eligible. However, if individuals pass the means test then they are eligible for chapter 7 bankruptcy.

Chapter 13 Is a Good Idea: When People Need to Employ an Automatic Stay

Under the chapter 13 bankruptcy law, individuals are given an automatic stay which prohibits creditors from pursuing legal remedies to obtain property or money their owed. In other words, once the bankruptcy cases are filed the automatic stay is activated. Creditors planning or have lawsuits, wage garnishments or foreclosures against individuals must automatically cease. The automatic stay remains activity until bankruptcy cases are discharge (successfully completed) or dismissed.

Chapter 13 Is a Good Idea: When People Understand That It’s a Long Process

Unlike chapter 7—which takes months—chapter 13 takes approximately three to five years. The process involves the U.S. Bankruptcy Court’s approval of a repayment plan. The plan indicates how long people will have to pay and for number years. Individuals must make their monthly payments to the bankruptcy trustees who send the money to creditors. However, people must continue to make their monthly payments such as mortgage and car loan payments to creditors.

Seek Legal Help When Deciding If Chapter 13 Is a Good Idea

Bankruptcy lawyers are experts in the chapter 13 bankruptcy law. They will talk to individuals about their current financial trouble and determine if chapter 13 is right for them. More importantly, bankruptcy lawyers will guide people throughout the entire bankruptcy process.