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The Basics of Chapter 13 Bankruptcy



Chapter 13 is a type of bankruptcy that allows debtors to reorganize in an attempt to pay back their debts over a certain time period.

Before filing for Chapter 13, you should contact a bankruptcy firm in your area and speak with a bankruptcy lawyer to see if Chapter 13 bankruptcy is right for you.

Is Chapter 13 Bankruptcy Right for You?

Before you decide whether Chapter 13 is right for you, you have to first decide if filing for bankruptcy is right for you.

If you can only afford the minimum balance on your bills or if you have recently suffered severe financial loss due to a life-changing event, such as an illness or divorce, then bankruptcy may be right for you.

The decision to file for Chapter 13 will depend on several factors. First, if you have filed for Chapter 7 bankruptcy in the last few years, you will not be eligible to file for Chapter 7 again. Thus, Chapter 13 bankruptcy may be your only option.

Also, if you have a steady income and some disposable income, then Chapter 13 may be right for you. That's because Chapter 13 requires that you may regular payment to your creditors over the course of several years to pay off your debt. As long as these payments are made in full and on time, a court will discharge the rest of your debts. In bankruptcy, discharge means you are no longer liable for your debts.

Chapter 13 also has some thresholds that debtors may not exceed. If you have a large amount of debt that exceeds this threshold, you will be ineligible for Chapter 13 bankruptcy. However, you may be eligible for Chapter 11 bankruptcy, which is similar to Chapter 13.

Finally, in 2005 Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). This law has made it more difficult for people to file for Chapter 7. If you cannot prove you are eligible to file for Chapter 7 under this law, you may have to file for Chapter 13.

Filing for Chapter 13 Bankruptcy

The first step in the Chapter 13 bankruptcy process is coming up with a debt repayment plan. You and your attorney must create a debt repayment plan that outlines how you will repay your debts over a three to five year period. Specifically, this plan must detail how you will repay your priority claims, such as your back taxes, in full.

This plan is then given to a court-appointed trustee. The trustee will examine the plan. If approved, it will go on to your creditors for review. Creditors are people or entities to whom you owe money. If the creditors have no objections, your plan is approved, and you can start making payments on it.

Payments are made to the trustee. Once all payments are made according to the plan terms, granted payments are made on time, a court will discharge your debts.

Remaining Debts

There are some types of debt that not even Chapter 13 bankruptcy can get rid of. The following is a list of debts you may still be responsible for: