Chapter 13 Bankruptcy Explained

If you are considering bankruptcy, you may want chapter 13 bankruptcy explained. A chapter 13 bankruptcy can be a great option for those who want to restructure their debts but who also want to hold on to their possessions. However, those considering a chapter 13 must be aware that, unlike in a chapter 7, you're not going to walk away from the bankruptcy court free of unsecured debts.

Understanding Chapter 13 Bankruptcy

Chapter 13 bankruptcy is popularly called a wage earners bankruptcy because it is appropriate for those who have enough money coming in to tackle at least some of their debts. Chapter 13 has rapidly become a very common form of filing for bankruptcy, after changes to the bankruptcy code in 2005 that limited and restricted the number of individuals who are eligible for Chapter 7 bankruptcy. 

If you make above the median income in your state and/or cannot prove that you will have nothing left over to live on if you are forced to repay some of your debts, you may be barred entirely from filing a chapter 7 bankruptcy. For individuals, this means that chapter 13 becomes the default option (other chapters, such as chapter 11, are primarily for businesses).

Under a chapter 13 bankruptcy:

• You get to keep your assets. The trustee does not seize your possessions or sell them in a sheriff's sale, unlike with a chapter 7.
• As soon as you file, collection efforts are stopped by an immediate stay. This makes chapter 13 a great tool to stop foreclosure proceedings in their tracks. 
• You must list your debts when you file, and come up with a repayment plan wherein you pay a set amount each month to pay back those debts. The repayment plan usually must last for between three and five years. Your bankruptcy trustee that has been assigned to your case will oversee your progress under the repayment plan and your creditors are given a chance to object to it.
• The bankruptcy judge will review your repayment plan and any creditor objections and will then approve your bankruptcy provided everything is satisfactory.
• You must make the payments according to the plan for the specified time. At the end of the 3-5 year period, any unpaid balance of your debt is dismissed. 

Getting Help

Understanding the basics of Chapter 13 explained is only a starting point- it is important that you get the help of a qualified and experienced bankruptcy attorney if you are contemplating bankruptcy. Your lawyer can assist you in choosing which chapter is right for you and can help you to complete all required paperwork to file.