Chapter 13 bankruptcy is a US bankruptcy proceeding. In this process, the debtor undertakes the organisation of their finances. The process takes place under the approval and supervision of the court.
Married couples and individuals, including self-employed or persons operating unincorporated business, can file for chapter 13 bankruptcy.
As the person undertakes chapter 13 organisation, they need to submit and follow a plan that can help them to repay any outstanding amount of the creditor within 4 to 5 years. In most circumstances, the repayment plan offers a substantial payback to the creditors. This payback amount equals the amount they would receive under any other kind of bankruptcy. Sometimes one can also use 100% of the disposable income of the debtor to pay as a repayment.
Understand Chapter 13
With the help of chapter 13 bankruptcy, any debtor can compile a list of creditors along with the amount of money owed, details about the information related to monthly expenses, income amount and sources. The debtor pays an agreed amount to an impartial and appointed bankruptcy trustee who would effectively consolidate the debt in one monthly amount. The trustee would distribute the money to the creditors of the debtor. Under chapter 13 protection, the deter has no direct contact with any creditors.
People can use chapter 13 protection if they have debts below a particular limit. This limit is different for unsecured debts and secured debts. Filers have to consult any bankruptcy attorney to know whether they are eligible for filing or not.
Chapter 13 Versus Chapter 7
Chapter 7 bankruptcy happens to be the most common type of bankruptcy. It helps an individual to erase the existence of their existing debt. They can start afresh. However, chapter 7 fillers need to surrender their home. But as soon as the chapter 13 bankruptcy gets initiated, the home foreclosure proceedings immediately cease.
Example Of Chapter 13 Bankruptcy
Let us understand the concept of chapter 13 bankruptcy with the help of an example. Let’s say that Erica lost her job and her husband Joy suffered a medical crisis. Due to this reason, they are unable to work. Eventually, they fall behind on the mortgage. During such a situation, the bank would initiate a foreclosure proceeding. But this will occur as soon as she receives a new job offer while her husband Joy launches a small business.
If they filed the chapter 13 bankruptcy, they could have stopped the process of foreclosure to keep their home. With the help of your study income, they could pay their mortgage amount every month while spreading the total amount over 5 years.
Advantages Of Chapter 13
Chapter 13 offers every individual several advantages over the liquidation stated in chapter 7. Significantly under chapter 13, an individual gets a stay opportunity to save their home from foreclosure. Nevertheless, they need to make their mortgage payment that comes under the chapter 13 plan.
Apart from that, the chapter allows individuals to make changes to the schedule of secured debts. They can also exchange them over the total lifespan of chapter 13. As any debtor does this, they can lower their payments. It also comes with a special provision that helps to protect the third parties who become liable to the debtor for any consumer debts. Along with that, the provision also protects the co-signers.
Finally, you can see that chapter 13 bankruptcy acts as a consolidation loan under which any individual can make plan payments to the trustee. Later the trustee can distribute the payments to different creditors. All these provisions come under chapter 13 protection.
Chapter 13 bankruptcy is also known as the wage earner’s plan. It enables every individual having a regular income to develop a plan that can help them repay all their debts. Under such a chapter, the debtor proposes a repayment plan that can help them make instalments to the creditors within 3 to 5 years. If in case, the current monthly income of the debtor is less than the applicable state median, the plan will be in existence for at least 3 years. Unless the court approves any longer period for any special cause. When the current monthly income of the debtor is greater, the state median the plan exists for 5 years. There will be no cases where the plan provides the debtor with a payment that extends over 5 years. During this period, the law forbids any creditors from starting any collection of assets or continuing them.