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
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.