Bankruptcy Chapter 13
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Chapter 13 enables individuals who have steady incomes to pay all or a portion of their debts under protection and supervision of the court. Under Chapter 13, you file a bankruptcy petition and a proposed payment plan with the U.S. Bankruptcy Court. Payment plans provide for payment of debts over 3 to 5 years. An important feature of Chapter 13 is that you will be permitted to keep all your assets while the plan is in effect and after you have successfully completed it.

Because of the changes in bankruptcy law in 2005, many people will no longer be eligible to file for bankruptcy under Chapter 7, or will have their Chapter 7 case converted to a Chapter 13 case.

 

Chapter 13 is available to: those borrowers with regular income who have less than $307,675 in unsecured debts (such as credit cards) and less than $922,975 in secured debts (such as mortgages). In a joint Chapter 13 case those limits are not doubled, instead they are applied to the total amount owed by the debtors.

Chapter 13 discharge won't be granted if the debtor received discharge in Chapter 7, 11, or 12 within the previous 4 years, or a discharge under Chapter 13 within the previous 2 years.

Chapter 7 vs 13:  Chapter 13 offers individuals a number of advantages over liquidation under Chapter 7. Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Nevertheless, they must still make all mortgage payments that come due during the chapter 13 plan on time. Another advantage of chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the chapter 13 plan. Doing this may lower the payments. 

Chapter 13 also has a special provision that protects third parties who are liable with the debtor on "consumer debts." This provision may protect co-signers. Finally, chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under chapter 13 protection.


 

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