Chapter 13 Bankruptcy

What is a Chapter 13 Bankruptcy?

A Chapter 13 bankruptcy, also known as a wage earner's plan, is a legal process that allows individuals with regular income to create a repayment plan to address their debts. It offers several advantages over Chapter 7 bankruptcy, such as the opportunity to save homes from foreclosure. By filing under Chapter 13, individuals can halt foreclosure proceedings and gradually catch up on delinquent mortgage payments. However, they must continue making timely mortgage payments throughout the repayment plan. Another benefit of Chapter 13 is the ability to reschedule and extend the repayment period for secured debts, excluding primary residence mortgages. This arrangement can potentially reduce monthly payments. Moreover, Chapter 13 provides protection for co-signers on consumer debts and operates as a consolidation loan, with individuals making plan payments to a trustee who then distributes them to creditors. This setup eliminates direct contact between debtors and creditors during the protection period.

How do you qualify for Chapter 13 Bankruptcy?

You and your attorney will determine a Chapter 13 plan for reorganizing your debts and then submit it to the court for confirmation. Once your repayment plan is confirmed, your Chapter 13 Trustee will distribute the funds you have paid to your creditors until the plan is completed. Upon completion of the plan, you will receive a discharge within three to five years. Any individual, including self-employed individuals or those running unincorporated businesses with a monthly recurring income, is eligible for Chapter 13 relief.

What occurs following discharge from Chapter 13 bankruptcy?

After receiving a discharge from Chapter 13 bankruptcy, debtors can experience significant financial relief. A discharge releases the debtor from personal liability for most debts included in the bankruptcy, excluding certain types of student loans, child support, and certain taxes. The discharge prohibits creditors from taking any collection actions against the debtor. While the debtor is no longer legally obligated to repay discharged debts, they can choose to make voluntary payments to certain creditors. Additionally, the discharge removes the legal obligation to pay remaining unsecured debts and provides a fresh start. However, it's important to note that a Chapter 13 bankruptcy discharge does not remove obligations such as ongoing mortgage or car loan payments that were not paid off during the repayment plan. Debtors must continue making regular payments on such obligations to retain their property. Overall, a Chapter 13 bankruptcy discharge marks the completion of the repayment plan and offers individuals the opportunity to rebuild their financial stability.