Consumer Chapter 13 Bankruptcy Overview

Chapter 13 Bankruptcy or Consumer Debt Adjustment means that a person can or at least will repay all or a part of his or her debts. The problem is that they are behind. They need relief. They need protection. 

In a Chapter 13, monthly payments are made to the Bankruptcy Trustee, who disperses the moneys collected to the debtor's creditors according to a repayment plan submitted by the debtor. The debtor must propose a payment plan based upon his or her excess monthly income, and payments  must continue regularly for 36 months (sometimes 60 months.). When the plan has completed, any remaining debts are then discharged.

Chapter 13 Bankruptcy originated during the 1930s Great Depression to provide relief to those people who could not pay their debts because of circumstances beyond their control.  Chapter 13s are commonly called Wage Earner Bankruptcy or Individual Debt Adjustment Bankruptcy depending upon the vernacular of your part of the country. The phrases all mean the same. 

Chapter 13  bankruptcy is a repayment plan that protects the debtor from collection action during the plan and any unpaid balance of dischargeable debts at the end of the plan. The discharge in Chapter 13 covers many debts that cannot be discharged in Chapter 7.   It is a powerful tool for debtors to regain control of their financial lives and to get a meaningful fresh start. 

Debtors choose to file a  repayment plan under Chapter 13 when

The Chapter 13 plan does not have to pay debts in full; it can provide for only fractional payment.  What the plan has to pay to creditors is a function of the confirmation tests. The Bankruptcy Code does require that priority claims be paid in full; The most frequently found priority claims are recent taxes and family support. The Chapter 13 discharge eliminates some debts that cannot be discharged in Chapter 7, like tax penalties and debts incurred by dishonesty. It permits the debtor time to pay debts that can't be discharged in either chapter, like recent taxes or back child support; to cure defaults on home mortgages; and to eliminate liens to the extent the lien is greater than the value of the asset. 

Chapter 13 Bankruptcy is somewhat like Chapter 7 but with three exceptions: 

How Much and How Long: Typically, you will make payments called for in your original agreement on your secured debts, and reduced payments on your unsecured debts. Most repayment plans last three years. After that, any remaining unpaid balance on the unsecured debts is wiped out (discharged). In some cases, the court will approve a five-year repayment plan. 

Can't Keep Up With the Plan: If, for some reason such as loss of job, you cannot keep up with your payment plan, the trustee may modify your plan. The trustee may give you a grace period if the problem looks temporary, reduce your total monthly payments or extend the repayment period. If it is clear that there is no way you'll be able to complete the plan because of circumstances beyond your control, the court might let you discharge your debts on the basis of hardship. In the alternative, you can convert your Chapter 13 bankruptcy into a Chapter 7.

How Much Will You Have to Repay: The total amount you will have to repay creditors depends on a number of factors, including the type of debt that you owe and the philosophy of the Bankruptcy judge.