What is Chapter 13 bankruptcy?

Chapter 13 bankruptcy is one form of bankruptcy under the United States Bankruptcy Code whereby someone reorganizes their debt and pays back either all or a portion of the debt over a 3 to 5 year period.  Chapter 13 is most commonly used to save a home that’s in foreclosure.  In a Chapter 13, a debtor is able to make the regular mortgage payment on time once again and pay the part that they fell behind over the next 3 to 5 years.  The amount that they pay per month is dependent upon their income, their expenses, their assets and their liabilities.

In a typical Chapter 13 bankruptcy case, there is a Meeting of Creditors, a confirmation hearing and then an amount that is solid in terms of how much is paid back per month.  The Chapter 13 trustee has the duty and obligation to administer the debtor had to make sure that all of the money paid towards a Chapter 13 is divvied out to the different creditors pursuant to a hierarchy under the Bankruptcy Code. 

The other form of bankruptcy is Chapter 7 which is not nearly as beneficial when you’re trying to save a home that’s in foreclosure.  Under Chapter 7, you have to catch up on your mortgage arrears on your own outside of the bankruptcy whereas in Chapter 13, you are able to pay the mortgage arrearages over a 3 to 5 year period.  So depending upon what your financial situation is and what you are trying to accomplish will dictate whether or not a Chapter 13 reorganization or a Chapter 7 fresh start is the best case for you.

The other reason why someone would typically file a Chapter 13 is to protect other types of assets that would be liquidated in a Chapter 7.  By filing a Chapter 13 and paying back at least what creditors would receive under a Chapter 7, you are able to keep all of your property free and clear while you are in your repayment status under Chapter 13.

 

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