What Is Chapter 13 Bankruptcy?

When someone files for bankruptcy under Chapter 13 of the Bankruptcy Code, their aim is to have the opportunity to repay some or all the debts in their name, in better terms, i.e. lower or no interest. Unlike Chapter 7 which involves liquidation of assets, this process involves restructuring debts which allows the debtor to use whatever income they may have in the future to pay off the creditors. Filing Chapter 13 Bankruptcy is thus applicable for a debtor who has a regular income, and thus can afford to request for such adjustments or reductions.

The United States Bankruptcy Code gives the debtor a ceiling of 5 years, within which the creditors must be paid back. While the attorney will safeguard your interests, the entire process is carried out under the supervision of the courts.

How Does Chapter 13 Bankruptcy Work?

While debtors are allowed to keep all of their property, the court approves a new interest-free plan for repayment. A written plan is created giving details of all the transactions that will occur, and the duration of the same. The repayment must begin within thirty to forty-five days after the case has started. The transitory stage of paying a trustee who then pays a creditor, as in Chapter 7 Bankruptcy is usually eliminated with Chapter 13 Bankruptcy. Although, in some cases people may involve a trustee who would take care of disbursing money to the creditors as per the plan. Also, as per the law the creditors must strictly adhere the repayment plan approved by the court and are in fact prohibited to collect any claims from the debtor. Your attorney will prepare new repayment plan to best suit your situation.

The one advantage of Chapter 13 over Chapter 7 Bankruptcy is the full discharge option which is not applicable under Chapter 7 filing. For example, if a debtor manages to complete all necessary payments in the plan, he/she is given a full plan discharge. (There are a few exceptions to this case, which your attorney will guide you about if necessary.) Yet another advantage of the Chapter 13 filing is that a repayment can be created even if creditors disagree with it, as long as it is approved by the Court. Although, in all fairness the court allows creditors also to file an objection, in case they may have any.