Chapter 13 Bankruptcy

Chapter 13 bankruptcy is formally known as the Adjustment of Debts of an Individual with Regular Income. Chapter 13 bankruptcies are traditionally used for consumers who have steady income or available cash resources which can be reasonably forecasted to structure a repayment plan.

For most, chapter 13 is preferable to chapter 7 because it allows the debtor to maintain possession of certain “necessity of life” assets. A chapter 13 bankruptcy allows the debtor to repay creditors over time based upon their current financial capabilities. Chapter 13 bankruptcies are typically structured over the course of three to five years, dependant upon the severity of the debtor’s financial situation. This type of repayment process takes place at a confirmation hearing during which the court either approves or disapproves the debtor's proposed repayment plan. The court’s decision basically depends on whether the structured plan meets the bankruptcy code’s requirements for confirmation.

In a Chapter 13 the debtor is usually able to remain in control of their property and possessions while making reduced payments to creditors however, there are occasions where debtors are forced to liquidate assets and downgrade homes or vehicles. Payments to creditors are made via a court appointed trustee. Debtors do not receive an immediate discharge of their debts. Under chapter 13 bankruptcy the debtor must complete the repayment plan before a discharge of debt is granted. However, the debtor is protected from lawsuits, garnishments, and other creditor legal recourse while the repayment process is in effect. It is important to remain mindful of the fact that not all debts can be discharged under the bankruptcy code. The debts that are able to be discharged will vary dependant upon which chapter you qualify for. However, the most common types of non-dischargeable debts are IRS tax debt settlement claims, debts that are not presented by the debtor to the court while filing for bankruptcy, debts for spousal alimony or child support, debts to governmental units for fines and penalties owed to government entities, debts for personal injury caused by the debtor’s operation of a motor vehicle while driving intoxicated, debts for willful and malicious injuries to person or property, debts for government funded or guaranteed educational loans, and debts for certain condominium or cooperative housing fees.