Understanding Chapter 13 Bankruptcy

Chapter 13 bankruptcy, also referred to as a wage earner’s plan or reorganization bankruptcy, allows people with a regular source of income to create a repayment plan for all or a portion of their debts. Debtors can restructure their debts and make arrangements to pay them back in installments over a three to five year period, depending on the amount of their monthly income. Creditors and collections agencies are forbidden to pursue debtors for payment during this time.

Advantages of Chapter 13 Bankruptcy

Chapter 13 bankruptcy can offer a debtor several benefits that are unavailable under chapter 7 liquidation. Chapter 13 bankruptcy conveniently acts like a consolidation loan, in which the debtor makes one consolidated payment to a trustee. Because it is the trustee’s responsibility to distribute payment to various creditors, the individual never has to have any contact with them while the plan is in effect.

Perhaps most importantly, debtors may be able to avoid losing their home. Chapter 13 can allow them to halt foreclosure proceedings, and they are given the opportunity to catch up with their mortgage payments over time. Any other secured debt that they have fallen delinquent on may also be restructured, possibly resulting in lower payment amounts, while the under chapter 13 protection.

Additionally, if a third party is partially liable for the debts of someone filing for bankruptcy, such as a co-signer, a special provision under chapter 13 may provide them protection.

Chapter 13 Bankruptcy and Eligibility

According to 11 U.S.C. § 109, to be eligible for Chapter 13 bankruptcy, you must be an individual whose unsecured debts (like medical or credit card bills) do not exceed $383,175 and whose secured debts (like houses or cars) do not exceed $1,149,525. These amounts are subject to change according to fluctuations in the consumer price index. An individual must be able to prove they have the income required to make their payments, and must then receive credit counseling and debtor education. Their payment plan must first pay “priority debts,” including any wages, child support, or alimony they may owe, and any remaining income must go toward the repayment of their unsecured debts.

Once the payment plan is completed at the end of three or five years, any debts that still remain will be discharged, providing that you are current on your priority payments and that you have received budget counseling from an agency approved by the U.S. Trustee.

Considering Bankruptcy? Wadhwani & Shanfeld Can Help

If you are struggling with debt, filing for bankruptcy may be the solution you need to get creditors off of your back and regain your financial freedom. Both of the partners at Wadhwani & Shanfeld are board-certified bankruptcy specialists who can help you choose the best financial solution for your situation. For a free consultation, please contact a Southern California bankruptcy lawyer by calling (800) 996-9932.


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