Chapter 13 Bankruptcy Explained

The process of going through bankruptcy is protected by state and federal laws. Bankruptcy laws differ by state and can be somewhat complicated. So before you make a decision on bankruptcy, make sure you have all the information about how the laws will apply to you. Find answers by talking to a local bankruptcy lawyer. When you fill out the free form below, you can get a free case evaluation with an attorney near you.

Chapter 13 bankruptcy is designed to give the debtor the opportunity to pay down his or her debts with court protection from the harassment of constant calls from bill collectors and creditors. This form of bankruptcy should not discharge any debts, but instead gives the debtor the opportunity to set up a workable payment structure to help get out of debt in the foreseeable future. It generally works more like a debt repayment plan than a “get out of debt” card.

Qualifying for Chapter 13

Many who opt to file Chapter 13 bankruptcy do so because they do not qualify to file Chapter 7, which is the form of bankruptcy that virtually erases many types of debt. Recent federal bankruptcy laws make it harder to qualify for Chapter 7. To qualify, you usually must make at or below the median income level in your state. If you do not qualify, Chapter 13 is an option.

A qualification for Chapter 13 bankruptcy is having regular income. Others are more in depth and can be discussed with an attorney if you so choose.

How Chapter 13 Bankruptcy Works

Once you file Chapter 13, you usually set up a payment plan with the help of the court. This is generally an interest-free repayment plan chosen by the courts. Your creditors do not have to agree to the plan, because the courts are in control. Once you file and are approved, you will have to start making payments on the plan within 30 to 45 days of filing for bankruptcy. Sometimes these payments will go through a trustee, but they may be sent directly to the creditors.

If you are able to fulfill your obligations in the repayment plan in the time frame set forth by the courts, you may be offered a full plan discharge. This is an advantage of Chapter 13 bankruptcy over Chapter 7, where a full plan discharge is not available. While you are working under the payment plan, your creditors cannot collect more from you than what is outlined on the plan, even if they do not agree to it. They are not allowed to send collection agencies or make collection calls once you have Chapter 13 protection.

Chapter 13 Bankruptcy and Your Assets

Chapter 13 bankruptcy usually allows you to keep your assets, even those that are non-exempt in many cases. This is because it is a repayment plan, so you are going to work with your creditors to repay the debt, rather than eliminating it. Some choose to file Chapter 13 when they qualify for Chapter 7 because of valuable, non-exempt assets they want to try to keep.

Benefits of Chapter 13

Chapter 13 bankruptcy carries two main benefits. First, it often allows you to keep most of your assets, if you stick to your repayment plan. Second, it can give you a lower, interest-free payment option each month as you work your way out of debt. If you have steady income and just need a little help to get out of debt, you may want to consider filing Chapter 13.