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What is Chapter 13 bankruptcy?

Chapter 13 bankruptcy, also known as “reorganization bankruptcy” is designed for individuals with assets who need time to work out a payment plan with their creditors. It’s very different from Chapter 7 bankruptcy. When a debtor files for Chapter 7 bankruptcy, it’s possible to eliminate most of their debts, all non-exempted assets are liquidated by the bankruptcy court to pay off the debtors. Under Chapter 13 bankruptcy rules, it’s not required to hand over any assets or property in the possession of the debtor. However the debtor has to make serious, legal commitments to pay some, or all the creditors, from their monthly income over a period of three to five years depending upon the amount of debt burden and their annual income. The debtor keeps, and still owns all the non-exempted assets while paying the creditors, and that’s the basic advantage when one decides to file Chapter 13 bankruptcy.

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Who can file for Chapter 13 bankruptcy?

According to the Chapter 13 bankruptcy law, not every debtor is eligible to file the bankruptcy. Since the chapter makes it mandatory for the debtor to pay off some, or all the creditors, it’s important to prove that the debtor possesses enough income potential, and earns enough monthly income to successfully redeem the outstanding debt. In the case their credit history indicates irregular monthly payments, or if the monthly income appears too low, the debtor does not qualify for Chapter 13. Another criterion is the total debt amount. If the outstanding amount is too high, the bankruptcy court might not consider the bankruptcy application. The unsecured debts cannot be more than $336,900, while secured debts should not exceed $1,010,650. Chapter 13 bankruptcy laws are very stringent as far as repayment is concerned, and the court does not compromise on the monthly payments.

Chapter 13 process ... for those with assets they want to keep.

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Filing Chapter 13 bankruptcy also involves credit-counseling services provided by any agency recognized by the United States Trustee's office. It’s sometimes not mandatory to take advantage of the counseling services, but it’s highly recommended. Counseling helps in preparing for the bankruptcy process, and the applicant comes to know what kind of post-bankruptcy scenario he or she is likely to face in the future, and what’s the best way to deal with it. Another major benefit of the counseling services is that the counselors correctly evaluate the debt condition and provide authentic advice whether it’s advisable to file for Chapter 13, and if so, what’s the correct way to file chapter 13 bankruptcy. It’s possible to select an approved agency from the website www.usdoj.gov/ust and select "Credit Counseling and Debtor Education." These agencies charge a fee while providing their services, since they often employ Chapter 13 bankruptcy lawyers.

Filing Chapter 13 Bankruptcy and discharging debt

Immediately avoid foreclosure by filing Chapter 13

It’s possible to immediately stop foreclosure by opting for the “Chapter 13 bankruptcy discharge” statute. The foreclosure can be stopped any time prior to the sale of the property, since Chapter 13 statute allows debtors to retain all non-exempted and fixed, as well as, moveable assets. However, you are obligated to make future mortgage payments regularly to the mortgage company.

When to file for Chapter 13?

One of the main reasons why debtors choose Chapter 13 bankruptcy is there are distinct advantages in taking advantage of chapter 13 bankruptcy mortgage benefits. However, it’s very important to know when it’s the correct time to file. Filing is recommended when:

  • The debtor has had a Chapter 7, 11, or 12 discharge more than four years ago, or
  • The debtor has received a Chapter 13 discharge more than two years ago
  • The debtor has a co-signer or a co-debtor on a personal debt.
  • The advantage of having a co-signer or a co-debtor is that the person provides a collateral
  • guarantee and is equally responsible for the redemption activity.

If the major portion of your debt consists of tax debt or IRS liabilities, or you owe federal taxes, it’s important to determine which type of bankruptcy is recommended for you. A chapter 13 bankruptcy lawyer is the right person to assist you.

When is filing for Chapter 13 recommended?

A Chapter 13 bankruptcy attorney is the best judge in deciding when filing for Chapter 13 is recommended for you. However, the following pointers can help you decide when Chapter 13 is the right alternative:

  • The debtor has a sincere desire to repay the debts and the trustee appointed by the bankruptcy court can work with the debtor to help make this happen.
  • The debtor is behind on the mortgage or car loan payments and wants to reinstate their ownership of the asset by redeeming the missed payments.
  • The debtor wants to retain all no-exempted assets and their value but needs help with the repayment process. At the same time, the debtor may want to keep the option of a Chapter 7 bankruptcy filing for the future.
  • The debtor is a family farmer unable to qualify for the Chapter 12 family farming bankruptcy statute but has a large farming related debt.
  • The debtor has previously filed for Chapter 7 bankruptcy within the last eight years and is not eligible to file for it again.

It’s worth studying the Chapter 13 bankruptcy FAQ for a better understanding of when one should file for Chapter 13 bankruptcy.

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