A Detailed Look at Chapter 13 Bankruptcy

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Chapter 13 Bankruptcy | Financial Freedom Advocates

A Detailed Look at Chapter 13 Bankruptcy

In our previous article, we provided a brief introduction to the topic of Chapter 7 bankruptcy. As we saw, Chapter 7 bankruptcy is a relatively simple procedure, and it allows debtors the opportunity to start fresh by wiping out most of their debts. There are some caveats, to be sure, such as the possibility that certain non-exempt property may be sold to pay off creditors. For the most part, though, Ch. 7 bankruptcy can be a very powerful tool for individuals.

Chapter 13 bankruptcy, by contrast, is a more complex procedure which involves numerous steps. This procedure is more difficult to complete without professional assistance. In this post, we’re going to provide a cursory overview of this topic.

Basic Purpose of Chapter 13 Bankruptcy

In a Ch. 7 bankruptcy, debtors can literally eliminate their debts entirely without repaying creditors. Chapter 13 bankruptcy doesn’t work this way. In this type of bankruptcy, a debtor essentially “reorganizes” his or her debts and then pays them off with discretionary income over a period of time. In most cases, the debtor pays less than the full face value of the debt, and so there is some debt relief involved.

Eligibility for Chapter 13

Eligibility for Ch. 13 relief essentially hinges on 3 things: staying under the debt limits, having sufficient income to repay, and not being a business. Chapter 13 has limits which apply to both unsecured and secured debts. This means that debts beyond those limitations simply cannot be reorganized in a Ch. 13 bankruptcy. Also, debtors need to demonstrate that they have enough steady income to pay back creditors over a given period of time (3 to 5 years). Finally, only individuals may use Chapter 13, although this does include sole proprietors.

Step #1: Coursework and Mandatory Filing Fees

In order to initiate a Chapter 13, the debtor will need to take certain credit counseling courses and also pay a filing fee. These requirements mirror those for a Chapter 7 bankruptcy. The credit courses are typically quite affordable, using being between $30 to $40 each.

Step #2: Development of Payment Plan

After taking these initial steps, the next step is to develop a plan to repay creditors over a certain period of time. The reason why Chapter 13 is often attractive to debtors is that secured property isn’t sold off in this situation; instead, the debtor merely pays off creditors over time and retains the property. Significantly, creditors and the bankruptcy trustee can object to the payment plan if they feel that the terms are inadequate.

Step #3: Confirmation of Payment Plan

Finally, the payment plan must be confirmed by the presiding judge. The judge will only confirm the plan if it meets certain requirements. These requirements include the following: being feasible (i.e. the debtor can reasonably expect to complete the repayment), being put forth in good faith, and being compliant with bankruptcy law.

Chapter 13 Can Be a Promising Opportunity

Bankruptcy has a certain sting to it in our culture, but this is merely a social construction rather than a reality. The truth is that bankruptcy can put debtors back in the driver’s seats of their own lives and enable them to build their financial future. Chapter 13 is a perfect example of this kind of tool. In a Chapter 13 bankruptcy, much of the existing debt is paid off, it is simply reorganized and paid off gradually. But this gives the debtor the ability to afford debts more reasonably. Don’t let the sting of bankruptcy deter you from taking control of your own life.

Contact Financial Freedom Advocates for More Information

This is just a brief overview of Chapter 13 bankruptcy. There is more to know, and so if you’d like to learn more please reach out to Financial Freedom Advocates today by calling 786-668-6688.

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