Chapter 13 is a provision in the United States law that assists individuals with a steady income who are facing difficulties in repaying their debts. It enables a trustee to collect the person’s earnings and distribute them to creditors through a court-approved debt-repayment plan. This plan, also known as a wage-earner’s plan or an income-based plan, allows the debtor to propose extending or reducing the balance of their obligations. Upon completing the payments under the plan, the debtor can be discharged from unsecured debts. If the plan is created in good faith and commits all of the debtor’s disposable income for three years, it will be approved. Chapter 13 aids individuals in regaining financial stability and gradually settling their debts.
Chapter 13 of the United States Bankruptcy Code allows individuals with a steady income to establish a court-approved debt-repayment plan, also known as a wage-earner’s plan or income-based plan. A trustee is responsible for managing the plan, collecting the debtor’s earnings, and distributing them to creditors as outlined in the plan. By proposing a plan to extend or reduce their obligations, debtors can potentially receive a discharge from unsecured debts upon completing the payments under the plan. To be confirmed, the plan must be made in good faith and commit all of the debtor’s disposable income for a period of three years. If the plan meets these requirements and ensures creditors receive what they would have received under Chapter 7, it will be confirmed. For instance, if John, who has a regular income, owes $50,000 in unsecured debt, he can file for Chapter 13 bankruptcy. He proposes a plan to pay $500 per month for three years, totaling $18,000. The trustee collects John’s earnings and distributes the payments to his creditors according to the plan. After three years, John is discharged from his remaining unsecured debt. Another example is Sarah, a small business owner with a regular income. She owes $100,000 in debt, including $50,000 in unsecured debt. Sarah files for Chapter 13 bankruptcy and proposes a plan to pay $1,000 per month for five years, totaling $60,000. The trustee collects Sarah’s earnings and distributes the payments to her creditors according to the plan. After five years, Sarah is discharged from her remaining unsecured debt.
Chapter 13 bankruptcy is a type of bankruptcy that allows individuals with a regular income to create a plan to repay all or part of their debts over a period of three to five years.
Individuals who have a regular income and unsecured debts of less than $419,275 and secured debts of less than $1,257,850 are generally eligible for Chapter 13 bankruptcy.
Chapter 13 bankruptcy involves creating a repayment plan to pay off debts over time, while Chapter 7 bankruptcy involves liquidating assets to pay off debts.
Most types of debts, including credit card debt, medical bills, and personal loans, can be included in a Chapter 13 repayment plan.
A Chapter 13 repayment plan typically lasts three to five years, depending on the individual’s income and the amount of debt to be repaid.
Yes, one of the benefits of Chapter 13 bankruptcy is that it allows individuals to keep their property while repaying their debts.
Yes, filing for Chapter 13 bankruptcy will put an automatic stay on creditor actions, including harassment and wage garnishment.
In some cases, individuals may be able to convert their Chapter 13 bankruptcy to a Chapter 7 bankruptcy if they are unable to continue with the repayment plan.
Filing for Chapter 13 bankruptcy will have a negative impact on your credit score, but it can also provide an opportunity to rebuild your credit over time.
While it is possible to file for Chapter 13 bankruptcy without an attorney, it is highly recommended to seek the guidance of a qualified bankruptcy attorney to ensure the process is handled correctly.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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