Chicago Bankruptcy Question: What is a Chapter 13 bankruptcy?

Chicago Bankruptcy Question of the Day: What is a Chapter 13 bankruptcy?  A Chapter 13 bankruptcy is properly titled an "Adjustment of Debts of an Individual with Regular Income".  It is more commonly known as a "wage-earner's bankruptcy", a "consolidation" or a "reorganization".  The simple definition of a Chapter 13 bankruptcy is that it is a structured repayment plan under the protection and supervision of the federal courts.

Individuals file for Chapter 13 bankruptcy for a variety of reasons, but the most common are to stop a foreclosure, stop a repossession, protect an asset(s) that cannot be exempted in a Chapter 7, repay a debt that is non-dischargeable in Chapter 7 or ineligibility to file for Chapter 7 due to high income or prior bankruptcy filings.

Chapter 13 bankruptcy allows you to consolidate all of your debts into one fixed monthly payment based on your income and your budget.  Your debts are broken down into classes and each class of debt is treated differently in your Chapter 13 plan.  Some debts, such as mortgage arrears on the first mortgage of a property you are keeping, must be paid in full.  Other debts, such as credit cards and medical bills, may only be paid pennies on the dollar.

Filing for Chapter 13 will stop any and all collection action being taken against you including, but not limited to, foreclosure, repossession, wage garnishment, IRS levies and state court collection lawsuits.    You will begin repaying your debt thirty days after filing and your repayment plan will last somewhere between three to five years.  At the end of the repayment plan, you will receive a discharge of your debts.  Some debts may not be discharged at the end of the plan, most commonly student loans and tuition, but most will be.

The goal of a Chapter 13 bankruptcy is to protect your assets while you complete a good faith repayment plan in which you pay back as much of your debt as you can afford to.  If your financial situation changes while you're in a Chapter 13 plan, you will often have the flexibility to modify your plan to address the change in circumstances or convert your case to Chapter 7.

Chapter 13 bankruptcy plans can be very complex and the repayment plans are long.  You want to make sure that you have an experienced and well-qualified Chicago bankruptcy lawyer representing you to ensure that your plan is structured properly to give you the maximum relief possible.  You can always schedule an appointment with Ledford & Wu to receive a free consultation on how a Chapter 13 bankruptcy would benefit you.

No Comments

Leave a comment
Comment Information

Need Help With A Specific Issue?