What is Chapter 13 bankruptcy?

Answers

What is Chapter 13 bankruptcy?

A chapter 13 bankruptcy reorganizes your debts over a three to five year time period. During that time some debts are paid from the debtor’s current income under a court ordered repayment plan. The chapter 13 plan payments are made to a trustee who distributes the regular installment payments to the creditors.

Debtors in a chapter 13 bankruptcy typically keep valuable non-exempt property, that might have been lost in a chapter 7 bankruptcy, by paying the value of the non-exempt property to the unsecured creditors through the chapter 13 plan.

A chapter 13 bankruptcy will stop a pending foreclosure or vehicle repossession and allow the debtor a chance to catch up on past due payments through the repayment plan. In some cases, if the bankruptcy is filed within the allowed time, an already reposed vehicle may be recovered. Additionally, under some circumstances a chapter 13 bankruptcy will modify a vehicle loan to reduce the loan balance based on the value of the car or lower the interest rate, which will reduce the monthly payments.

A chapter 13 also stops collection activity for past due taxes and child support payments that are behind and allows you three to five years to pay the past due amount through the repayment plan.

The bankruptcy lasts either until the debts are paid or the life of the three to five year plan. The debtor receives a discharge at the completion of the plan for the past debt. All future debt must be paid as well as secured debt payments (home, car) will continue after the discharge has been given.

Please note a bankruptcy may remain on your credit report for 10 years. [top]
Who can file a chapter 13 bankruptcy?

There are two requirements to file a chapter 13 case. First, the debtor must have regular income. Examples of income are: wages, social security benefits, public assistance, family support, or rental income. Second, the unsecured debt must not exceed $336,900** (credit cards, medical bills) and secured debt must not exceed $1,010,650** (home mortgages, vehicle loans). Projected monthly income and expenses are used to structure a payment plan to fit your specific needs and make plan payments sufficient to catch up on any past due payments. Examples of past due payments that can be paid through the plan are: mortgage payments, car payments, child support, alimony, and taxes.

**Numbers were accurate as of 10-16-07 [top]