Chapter 13 bankruptcy is a provision of the United States Bankruptcy Code that allows those with regular incomes to develop a plan to pay off their debt over a period of three to five years. It is an alternative to Chapter 7, which allows debtors to liquify their assets to pay off their creditors.
Who Is Eligible for Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is designed for individuals with a steady source of income and who cannot meet their debt obligations. It is generally applicable for those with enough disposable income to pay off their secured debts without preventing them from meeting their basic needs.
How Does Chapter 13 Bankruptcy Work?
When a debtor files for Chapter 13, they submit a repayment plan to the court in order to pay off their debt over the course of three to five years. The debtor’s disposable income is used to fund their payment plan; the repayment plan is then approved by the court and creditors. During this time, the debtor’s creditors are restricted from filing suit against them. Once the payment plan has been fulfilled, the debtor is released from their debt.
Benefits of Chapter 13 Bankruptcy
For debtors, Chapter 13 may provide some relief in repayment, as the repayment period is longer than that for liquidation. It also allows debtors to keep their assets, like a house and car, as long as they stick to the repayment plan. In addition, creditors can still recover some of their debt since the payment plan requires that debtors commit a portion of their income to debt repayment.
Chapter 13 Bankruptcy in Summary
Chapter 13 bankruptcy is an option for those facing financial troubles who have a regular source of income and cannot manage to pay off their debt. It allows debtors to pay off their debt over a period of three to five years while preventing creditors from taking action. The plan must be approved by the court and creditors, and can be an effective solution for debtors in need of a financial fresh start.