Chapter 13 Bankruptcy: A Basic Explanation and Guide
Individuals and families that are experiencing debt-related financial difficulties are occasionally confused or even deterred from seeking legal remedies because of the seeming complexity of the various bankruptcy chapters. There is, of course, no need for them to forego the protections that the appropriate bankruptcy filing can provide, though. For this reason, it's important to review the nature of Chapter 13 filings and some of the ways in which they differ from those under Chapter 7.
Whereas Chapter 7 involves the liquidation of all non-exempt assets for the sake of providing immediate repayment to creditors in return for the forgiveness of certain debts, Chapter 13 is intended for individuals that have an income level that is high enough, once their debts have been reorganized under a court-approved repayment plan, to repay their creditors. Often called a 'Wage Earner Bankruptcy', such declarations are intended for individuals who do not need immediate relief from oppressive debts but do need a form of debt consolidation for the sake of their financial rehabilitation.
In contrast to Chapter 7 filings, wherein assets that are not deemed exempt by a trustee are sold, a Chapter 13 petitioner retains all of their assets. Their plan to repay creditors, however, must be approved by the courts. It is also limited in duration to 3 to 5 years, based on their income. If a filer is determined to lack the disposable income needed to sustain a viable Chapter 13 plan, however, the courts may not allow such a petition to proceed. The reverse of such a situation occurs when, upon having conducted a so-called 'means test', the courts conclude that an individual's income level is too great to allow a Chapter 7 filing to proceed.
As part of a Chapter 13 filing, a debtor must file a complete, written plan that describes how they intend to repay their creditors. They may also be subjected to further actions once their bankruptcy period has concluded and, for periods up to ten years, can experience some loss or lowering of credit. Unlike a Chapter 7 filing, however, their assets are protected from immediate seizure or liquidation.
Like all bankruptcy-related laws, these general principles apply to each individual in ways that may result in slightly different outcomes, depending on the nature of individual cases and the assets they involve. For further information, as well as consultation regarding a specific case or to hire representation for a bankruptcy proceeding, any individual should feel free to contact the experienced attorneys at our office. We're happy to help any individual receive the full protection the law provides.