A Chapter 13 bankruptcy differs from Chapter 7 in that a Chapter 13 debtor repays some of his or her debt through a repayment plan which provides the debtor with better terms than originally owed on the debt. This type of bankruptcy is appropriate for individuals with a regular income but who continue to have difficulty repaying debts and covering monthly expenses. As a Chapter 13 case involves repayment instead of discharge of debt, debtors who qualify for a Chapter 13 will have to work with their attorney to determine how much of their future income will be available to repay creditors. Many debtors who cannot qualify for Chapter 7 but need of financial assistance can breathe easier by restructuring their debt and reducing monthly expenses enough to get them back on their feet.
How Chapter 13 Bankruptcy Works
Debtors who file for Chapter 13 will devise a repayment plan most favorable to their particular circumstances. After the plan is submitted for court approval, repayment begins about 30 days after the case is filed and the debtor is generally allowed between 3 to 5 years in which to repay creditors. If the plan is approved, creditors are governed by the plan and the court oversees the entire process to ensure that debtor and creditor adhere to its terms. Once the debtor has made all of the payments required by the plan, it will be terminated and all debts included in the plan will be discharged.
Benefits of Filing for Chapter 13
Filing for Chapter 13 can stop wage garnishment, repossession and home foreclosure. Immediately upon filing for Chapter 13, wage garnishment ceases and creditors are relegated to receiving payments through the restructuring plan. Where an individual is on the verge of losing their homes or vehicles, filing a Chapter 13 bankruptcy can halt the process as the court will issue an automatic stay and will then restructure the debts so that mortgage and car payments become more manageable. By lowering the interest and reducing monthly payments, Chapter 13 bankruptcy provides a way to catch up on payments. While back taxes and child support are not dischargeable under Chapter 7, they can be worked into a Chapter 13 plan, which would eliminate interest and penalties and create a manageable repayment schedule over five years.