Consumer Financial Justice

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is often called “debt consolidation”. In a Chapter 13 bankruptcy, the debtor is allowed to keep all of his or her assets, provided that the debtor can continue to make the regular payments on the loans that may secure those assets. Generally, Chapter 13 is preferred by debtors who have a valuable asset, such as a home, that is not completely covered by exemptions and that they wish to keep. This is possible because under Chapter 13 a debtor proposes a plan to repay creditors over a three to five year period during which the debtor can make up overdue payments on any assets and pay into the plan the equivalent value of any assets not covered by exemptions. Since the debtors plan will require regular monthly payments, Chapter 13 is usually only appropriate for a debtor who has a regular source of income. Those without a steady monthly income would not prove feasible to pay into a Chapter 13 Plan.

At a confirmation hearing, the court either approves or disapproves the plan, depending on whether the plan meets the Bankruptcy Code’s requirements for confirmation. Chapter 13 is very different from Chapter 7, considering the Chapter 13 debtor usually remains in possession of the property of the estate and makes payments to creditors, through the Trustee, based on the debtor’s anticipated income over the life of the plan. Unlike Chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received. The debtor is protected from lawsuits, garnishments, and other creditor action while the plan is in effect.

Advantages of filing a Chapter 13 Bankruptcy

The debts are not paid through the sale of the debtor’s assets.

A foreclosure proceeding can be stopped by a Chapter 13 filing, and the debtor can keep a residence by paying the arrearages through the plan.

A Chapter 13 can be dismissed or converted to a Chapter 7 by the debtor, depending on the circumstances.
You can file for Chapter 13 after only 4 years after filing a Chapter 7.

Disadvantages of filing a Chapter 13 Bankruptcy

The debtor must make a monthly payment for 3-5 years in order to pay back either a portion or all of the debts, depending on the debtor’s income and equity in assets..

A discharge is not granted until the 3-5 year period is up and all payments have been made..

There are debt limitations..
Credit repair could be delayed due to the length of the plan.

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