Chapter 13 bankruptcy filing is a way for individuals in the United States to undergo a financial reorganization supervised by a federal bankruptcy court. The Bankruptcy Code anticipates the goal of Chapter 13 as enabling income-receiving debtors a debtor rehabilitation provided they fulfill a court-approved plan. Compare the goal of Chapter 13 with the debt relief contemplated in Chapter 7 that offers immediate, complete relief of many oppressive debt(s).
Chapter 13 bankruptcy, sometimes called reorganization bankruptcy, is quite different from Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, most of your debts are wiped out; in exchange, you must relinquish any property that isn't exempt from seizure by your creditors. In a Chapter 13 bankruptcy, you don't have to hand over any property, but you must use your income to pay some or all of what you owe to your creditors over time -- from three to five years, depending on the size of your debts and income. You'll have to prove to the court that you can afford to meet your payment obligations. If your income is irregular or too low, the court might not allow you to file for Chapter 13.
Debtors may also be forced into bankruptcy by creditors in the case of an involuntary bankruptcy, but only under Chapters 7 or 11. However, in most instances the debtor may choose under which chapter to file. The debtor may also choose to convert to another chapter from a 7 or 11 when forced into an involuntary bankruptcy.
Before you can file for Chapter 13 Bankruptcy, you must receive credit counseling from an agency approved by the United States Trustee's office. In addition, you'll have to pay the filing fee and file numerous forms.
Few people who have been through bankruptcy would report that it is a painless wiping-clean of the slate, after which you merrily go off into your future to start fresh. Bankruptcy is listed in the top 5 life-altering negative events that we can go through, along with divorce, severe illness, disability, and loss of a loved one. It is life-altering and leaves deep wounds both to the psyche and the credit report.
For more information, visit our Chapter 13 Bankruptcy Information page.
The decision to reach out for help with your debt is not one that's easy to make. You were raised to "do the right thing", but now it’s nearly unbearable. You struggle along while your creditors are turning up the heat. And now you’re at the point where the late fees, penalties and interest expense make it impossible to keep your head above water.
Ask yourself this. If you could eliminate your debt without permanently damaging your credit, why wouldn't you?
