When do you file a Chapter 13 Bankruptcy

One of the first questions people who are contemplating bankruptcy ask is which bankruptcy proceedings is the right choice, chapter 7 or chapter 13? We have just seen that you are eligible for filing Chapter 7 bankruptcy when you have minimal disposable income on hand and very little to no non-exempt property. When you have adequate disposable income, usually there is no need for filing bankruptcy. However, there are situations where you have disposable income but not enough to keep up with minimum debt payments. This is when you might consider filing a Chapter 13 bankruptcy.

This bankruptcy is also known as a reorganization bankruptcy. This petition allows you to restructure your loan liabilities to suit your disposable income subject to court approval. This can entail an extension of the loan repayment period. Under this arrangement, you make the payment to a Chapter 13 trustee, who then proceeds to appropriate the payments as per the orders of the Court. Your bankruptcy attorney will guide you how to proceed in the matter. The period of repayment is usually between three and five years.

Who is eligible to file a Chapter 13 bankruptcy?

The standards of eligibility are not strict. Let us see what they are. This is applicable to any person residing in the US.

     1. Regular income is essential. Individuals who rely on commission (real estate brokers) may not qualify.
     2. Unsecured debts should be less than $394,725 and secured debts should not exceed $1,184,200. If you have larger debts, you should opt for filing a Chapter 11 bankruptcy.
     3. Stock brokers and commodity brokers are not eligible to file bankruptcy under Chapter 13.
     4. You should not have intentionally dismissed a bankruptcy petition within 180 days.
     5. A prior bankruptcy discharge may prevent a discharge in a subsequent chapter 13 depending on the time. An attorney can explain.

Your bankruptcy attorney can help you more in this matter.

How is a chapter 13 different from a Chapter 7 bankruptcy?

You do not have a repayment plan in a Chapter 7 bankruptcy. A chapter 7 is a liquidation of non-exempt property. If you have unencumbered non-exempt property, the Chapter 7 trustee can attach the properties subject to the exemption available in different states. In some cases, exempt property (home with a mortgage) can be attached depending on the amount of equity.

In Chapter 13 bankruptcy there is a payment plan that you must adhere to. In a Chapter 13 bankruptcy, you can save your non-exempt property from attachments. A chapter 13 is also appropriate for people who don’t qualify for a chapter because their income is too high.

How is a Chapter 13 bankruptcy different from a credit consolidation?
There are two major differences.

     1. This is a repayment plan where you make the repayments to the maximum of your capability. It usually happens that the debtors pays a fraction of their debts and obtains a chapter 13 discharge of the remaining balances. This is not the case in case of a credit consolidation. You have to repay the entire amount with interest.
     2. The Chapter 13 bankruptcy forces your creditors to accept the repayment schedule. Your creditors do have the option to opt out.

You have just seen the salient points of a Chapter 13 bankruptcy.