Chapter 13

Chapter 13 bankruptcy is commonly called “reorganization” bankruptcy. It is form of bankruptcy that allows you to consolidate your debt in more manageable payment plan. A chapter 13 lasts between three (3) and five (5) years. In a chapter 13 bankruptcy, your goal is usually to protect property and lower your monthly payments. Chapter 13 is usually used by people who are trying to protect their home or land from foreclosure or stop repossession. Chapter 13 bankruptcy is also very useful if you have assets which cannot be protected in chapter 7 or you have too much income to file chapter 7.

A chapter 13 starts when you prepare and file your petition. Before you file a petition, you will have to go to credit counseling. You will also have to take a debt management course after you file your case but before you can finish and receive your discharge. Once your petition is filed, the “automatic stay” goes into effect. The “automatic stay” is the part of the bankruptcy law that protects you from creditors. This means that once your case is filed, your creditors can no longer harass you, call you, sue you, garnish your check, or take your property. Chapter 13 will stop any foreclosures or repossession or garnishments from continuing.

In most chapter 13 cases you can keep your home and automobiles. If you are still paying an auto or furniture, you should be able to lower your payments and interest. If you have a house payment, you will still pay the same amount for your house but chapter 13 allows you to catch up on arrears over time. The rest of your unsecured debt (i.e. credit cards and medical bills) are consolidated in a chapter 13 and usually paid only a percentage of the total amount.

Some debts cannot be discharged in bankruptcy. Student loans, child support, and most taxes are nondischargeable. These debts are often paid inside your chapter 13 plan. After you file a chapter 7, you will have to attend a meeting of creditors. Because a chapter 13 plan lasts several years, you will often have to return to court to deal with routine matters which often surface. You will also have to show identification and provide proof of income in the form of paystubs and tax returns.

Chapter 13 payments are usually made by wage assignment. Chapter 13 allows you routine and affordable way to deal with difficult creditors while protecting your assets.