Who Qualifies For Chapter 13 Bankruptcy?
This bankruptcy provision under the US Bankruptcy Code provides debt adjustments for an individual debtor with regular income. Filing bankruptcy under this Chapter also allows a debtor to retain property ownership while paying debts over a certain period of time, generally between three to five years. Popularly known an 'income-earner's plan,' this bankruptcy provision allows individual debtors who have regular incomes to propose a debt repayment plan, either paying for the whole or part of their debts.
Who is eligible for Chapter 13 Bankruptcy?
This bankruptcy provision is specifically designed for individual debtors - they may be self-employed, wage-earners, or operating an unincorporated business. Any individual debtor may file for this chapter provided that their unsecured debts are under US$ 307,675 and secured debts are under US$ 922,975 (amounts periodically adjusted to reflect current consumer price index).
How Does Chapter 13 Work? Under this bankruptcy provision, payments to creditors are usually made in installments. The payment period is usually based on the appropriate state median. During this payment period, creditors are prohibited by US Bankruptcy law from starting or continuing their collection efforts. Installment plans may be based on the following: (1) Three years installment plan - if an individual debtor's monthly income is less than the valid state median. This may be extended upon a court's approval 'for cause.' (2) Five years installment plan - if an individual debtor's monthly salary is more than the valid state median. This can no longer be extended. The Chapter 13 bankruptcy provision will take effect after an individual debtor files a petition with a bankruptcy court serving the debtor's area of residence. The court may also order a debtor to file the following schedules: (1) Assets and liabilities; (2) Current income and expenditures; (3) Executory contracts and unexpired leases; and (4) Financial Affairs Statement. Why choose Chapter 13 instead of Chapter 7? Chapter 13 Bankruptcy offers more advantages over liquidation, as they can request for the following terms: (1) Discontinue foreclosure proceedings and improve mortgage payments over a certain period of time. But under this bankruptcy provision, debtors are still required to pay all of the agreed mortgage payments on time; (2) Individual debtors under this bankruptcy provision can request for a rescheduling of their secured debts (other than their primary residence's mortgage). Once this request is approved, they can extend debt payments over the time period approved under Chapter 13 bankruptcy, thereby decreasing their required regular payments; and (3) This bankruptcy provision may also protect co-signers, other parties who may be liable with an individual debtor (usually related to consumer debts). The most significant of these advantages is the opportunity to keep properties from foreclosure under bankruptcy proceedings. Moreover, debtors may have no direct contact with any of their creditors while protected under Chapter 13 bankruptcy provision, like consolidated loan cases. Under this bankruptcy petition, an individual debtor just makes plan payments to an appointed trustee who is tasked to distribute payments to a debtor's creditors. This is the best bankruptcy option for individual debtors.
| 