Chapter 13 Bankruptcy
Chapter 13 is the section of the Bankruptcy Code which allows the person filing for Chapter 13 bankruptcy to keep all of their property, and to repay the debts over a period of time. The debts are restructured, and are usually paid off in three to five years.
Another term for Chapter 13 bankruptcy is a “wage earner’s plan”. If a debtor has a regular income, he or she can set up a plan to make installments to creditors and pay all or part of their debts. During this repayment period, the creditors are forbidden by law from trying to collect on the debt.
A person is eligible for Chapter 13 bankruptcy if their unsecured debts are less than $360,475, and if their secured debts are less than $1,081,400. To begin a Chapter 13 bankruptcy case, a petition must be filed with the court. On this petition, the debtor must list all of their creditors and the type of debt, source of income and amount of income, all property, and a detailed list of all monthly living expenses, including shelter, food, utilities, and medicines. The court charges $274 to process the Chapter 13 bankruptcy petition. This fee includes the $235 case filing fee, and the $39 administrative fee. The court then takes the petition and works out a repayment plan. The debtor then makes the monthly payments according to the plan. In three to five years, the debts will all be resolved.
Many people who have found themselves overwhelmed with debt have turned to Chapter 13 bankruptcy as the solution. It helps them find freedom from the creditors, and gets them on the path to climbing out of debt.
Chapter 13 bankruptcy is not without its consequences, and those consequences should be carefully considered. The filing is listed on credit reports for seven years, often times making it difficult to obtain credit. Also, under Chapter 13 bankruptcy, the debtor is prohibited by law from obtaining any additional debt without prior permission, until all old debts are paid off. This aspect may actually be a benefit to many. It provides accountability, and prevents the debtor from climbing deeper into debt. Another consequence of the filing is that disposable income, including tax returns, must be used to pay off the debts. And finally, the bankruptcy case becomes a permanent public record. Intensely private individuals may choose to reconsider filing.
After weighing the pros and cons of filing for Chapter 13 bankruptcy, many debtors choose to proceed. It is a way to pay back outstanding debts while being released from the pressure of creditors, while having legal safeguards in place to prevent the debtor from incurring even more debt. Many have chosen this option as their first step back into financial freedom.