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Understanding The Laws Of Chapter 13 Bankruptcy

Jan 30, 2008
There are multiple types or chapters of bankruptcy. Chapter 13 bankruptcy is frequently also known as reorganizational bankruptcy and also as a wage earner's plan. It can be used by individuals as well as unincorporated businesses. This allows the filer to structure a repayment plan for their financial obligations which is supervised and approved by the bankruptcy court. Under this plan, you are given a period of time, typically three to five years, to get your debt repaid. After you have filed, your existing creditors cannot call or harass you, and are not permitted to start collections proceedings against you.

This type of bankruptcy may be better suited for some people, although each case is different. For example, with Chapter 7 bankruptcy, the consumer's debt is almost completely eliminated. While this sounds like good news, the caveat is that your assets will be sold in order to repay the debt. By contrast with Chapter 13, while your debt remains, it is reorganized so that you can comfortably make payments and you are allowed to retain your assets.

Bankruptcy is not a debt consolidation loan, although some people may view it in that way. With Chapter 13, your financial obligations remain and you are not given any type of loan to pay them off. A repayment plan is defined and the funds are distributed to your creditors by a trustee which is appointed by the court. You no longer have any type of contract with your creditors, but that fact does not negate the fact that you still have financial obligations with each creditor. Certain types of debts are prioritized and are paid first.

If the liquidation of your assets is a concern, like having the mortgage company foreclose on your house, this type of bankruptcy may be perfect. Once Chapter 13 proceedings commence, any current or pending foreclosure procedure is stopped. If you have delinquent mortgage payments, those must be brought up to date and you must continue with your mortgage payments, but your home will not be foreclosed on.

If you have a significant amount of secured debt, it can be restructured and rescheduled to make it easier for you to make payments. The interest rate may be lowered and/or the term may be extended which will result in lower monthly payments, thereby making it easier for the consumer to make the payments.

Chapter 13 bankruptcies can be used for an individual or an unincorporated business or self employed person can file chapter 13 bankruptcy, with limitations. The total amount of unsecured debt must be less than about $307,000 and the total amount of secured debt must be less than about $923,000. These limitations are periodically adjusted according to the consumer price index.

For bankruptcy eligibility, you must agree to attend credit counseling sessions. This is interesting because the majority of bankruptcy filings are not due to financial mismanagement, but more likely something out of your control such as a job layoff, a messy divorce, high medical bills, etc. The credit counseling agency must be approved by the court and they may charge a fee. If you cannot afford the fee, they will usually adjust the fee so that you can meet this requirement.

If you need some financial breathing room that does not require liquidation of your assets, Chapter 13 bankruptcy may be what you are looking for. A workable repayment plan is arranged so that you can repay your debts. Although bankruptcy is not something you want to do, it might be the answer if you find yourself with an overwhelming loan of debt that you cannot see over the top of.
About the Author
For more insights and additional information about Chapter 13 Bankrupcy as well as getting a free bankruptcy evaluation from a bankruptcy lawyer local to you, please visit our web site at http://www.bankruptcy-data.com
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