Those overwhelmed by debt often consider filing either Chapter 7 or Chapter 13 bankruptcy. Chapter 13 bankruptcy, also known as “reorganization bankruptcy,” is a legal process designed to help individuals with a steady income regain control of their finances while repaying their debts over a specified period, usually three to five years.
Chapter 7 bankruptcy involves liquidating assets to pay off debts. However, Chapter 13 focuses on creating a manageable repayment plan. People considering filing this type of bankruptcy should know a few things about how it works before moving forward with this legal process.
Eligibility for Chapter 13 bankruptcy
Many people qualify for and apply for consumer bankruptcy every year, and the U.S. Courts state that during the 12-month period preceding June 2023, 418,724 bankruptcy filings occurred. To qualify for Chapter 13 bankruptcy, individuals must meet specific criteria, which include having a reliable source of income that enables them to make regular payments and having unsecured debts that do not exceed a certain limit. Additionally, applicants should not have had a Chapter 13 case dismissed in the past 180 days because of non-compliance.
The repayment plan
The main aspect of Chapter 13 bankruptcy is the repayment plan. A court-appointed trustee works with the debtor to create a plan that outlines how he or she will repay debts over a specific period. This plan factors in the debtor’s income, necessary expenses and the total amount of debt owed.
Advantages of Chapter 13 bankruptcy
Chapter 13 bankruptcy offers several advantages for individuals facing financial difficulties. For example, filing Chapter 13 bankruptcy allows debtors to keep their property and assets while consolidating debts into a single payment. Additionally, this type of bankruptcy can halt foreclosure proceedings and protect co-signers from pursuance by creditors.
Upon successful completion of the repayment plan, Chapter 13 bankruptcy results in a discharge, which means that any remaining qualifying debts get eliminated. This fresh start can provide relief for those who have followed through on their repayment plan.
