Bankruptcy

Bankruptcy: What is Chapter 13 Bankruptcy?

By David Leibowitz, Illinois and Wisconsin Bankruptcy

Chapter 13 bankruptcy requires you to make monthly payments to your creditors for up to five years. In contrast, chapter 7 bankruptcy lets you get out of paying almost all of your debts after just 4 months.  Why would anyone want to file bankruptcy under chapter 13? Sometimes, chapter 13 bankruptcy is required.  Congress thinks that people who make more than the median income should file chapter 13 bankruptcy unless they can prove that they really don’t have any disposable income to pay debts – in other words “overcome the presumption of abuse.” Other times, chapter 13 wage-earner plans are a great idea for debt adjustment.  Under chapter 13 bankruptcy, you can pay some or all of your debts over a period of 5 years.  The so-called “commitment period” is only 3 years if you make less than the “median income”.  In exchange for these payments, you can keep property you have which a trustee would sell from under you in chapter 7 bankruptcy.  So in chapter 13, you can:

• Save your house
• Keep your car
• Keep your property
• Save your business

In chapter 13, you make a monthly payment to the chapter 13 trustee.  The chapter 13 trustee then keeps a percentage for his efforts, slices the rest of the payment into portions for each of your creditors and then makes a monthly payment to each creditor in accordance with your plan. Your plan can be creative and flexible.  So talk with your lawyer about this if you have any questions or you need help in making your decision about filing chapter 13.

Full post as published by Bankruptcy Law Network on April 13, 2010 (boomark / email).