Understanding Chapter 13

February 11, 2009

There are multiple types or chapters of bankruptcy. Chapter 13 bankruptcy is frequently also known as reorganization bankruptcy and also as a wage earner’s plan. It can be used by individuals as well as unincorporated businesses. This allows the filer to structure a repayment plan for their financial obligations which is supervised and approved by the bankruptcy court. Under this plan, you are given a period of time, typically three to five years, to get your debt repaid. After you have filed, your existing creditors cannot call or harass you, and are not permitted to start collections proceedings against you.

This type of bankruptcy may be better suited for some people, although each case is different. For example, with Chapter 7 bankruptcy, the consumer’s debt is almost completely eliminated. While this sounds like good news, the caveat is that your assets will be sold in order to repay the debt. By contrast with Chapter 13, while your debt remains, it is reorganized so that you can comfortably make payments and you are allowed to retain your assets.

While many people may view this as a debt consolidation loan, it really is not a loan in any sense of the word. The debt remains, only a restructured repayment plan is defined and the money is distributed to the creditors via a trustee appointed by the courts. Although the consumer no longer has a contract with the creditors, the fact that the debt still exists cannot be overlooked. Certain types of debts are given a priority and must be paid in full.

If you have a lot of assets like a house that you do not want to go through foreclosure on, this type of bankruptcy can protect that. If foreclosure proceeding are already in place, the bankruptcy will stop those from progressing further. You may have delinquent mortgage payments which need to be brought up to date, but they may lose their delinquent status. You must also keep up with future mortgage payments.

The basis for this type of reorganization is that your debt is restructured and rescheduled to make it easier for you to comfortably make your payments. This is done through a variety of methods, including lowering the interest rate or extending the term of the loan to result in lower payments. The goal here is to allow you to make the payments, but with lower payments so that you can make them on time.

There are certain limitations with Chapter 13 bankruptcy in terms of the amount of debt that can be restructured. Your total of unsecured debt must be less than approximately $307,000 and the sum total of your secured financial obligations must be less than approximately $923,000. These figures are adjusted occasionally to be in sync with the consumer price index.

Before you are eligible to file bankruptcy, you must first go through credit counseling. The credit counseling must be through an agency that is approved by the United States Trustee’s office. Although the companies may charge a fee for their services, if you are unable to pay their fee, they must reduce the cost and make adjustments for your individual situation.

The bottom line is that this allows individuals some financial breathing room to repay their debts and does not require liquidation of their assets. A viable repayment plan is worked out so that debts can be repaid. This works for consumers who can still make payments but have found themselves with too much debt to handle at a particular time in their lives.

If you are feeling the crunch of unemployment and do not seem to have enough money to pay your bills bankruptcy may be an option for you.  For a free bankruptcy consultation contact Fears | Nachawati Law Firm, Phone (866) 705-7584. Immediate Assistance

Fears | Nachawati Law Firm has offices located throughout Texas in: Dallas / Fort Worth / Houston / San Antonio / and Austin.

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