Chapter 13 bankruptcy law differs from Chapter 7 bankruptcy in a number of crucial ways. While Chapter 7 is designed to wipe out many types of debt and give you a second chance, Chapter 13 is designed to give you the breathing room you need to reorganize your debt and pay it off over a three- to five-year period of time.
Because bankruptcy laws were changed a few years ago, it’s difficult for many people to meet the income requirements to achieve eligibility to file for Chapter 7 bankruptcy (an income over the previous six months that doesn’t exceed the median for a family of four in your state). Other people choose Chapter 13 bankruptcy over Chapter 7 bankruptcy because they have personal property that they want to keep (which would be liquidated in a Chapter 7 proceeding), they have a number of debts (like back taxes, child support, and student loans) that won’t be discharged under Chapter 7, or they have the desire to meet their debt obligations and just need time to do so.
Eligibility for Chapter 13 Bankruptcy
In order to be eligible for Chapter 13 bankruptcy, you need to meet certain requirements. For example, you must have a regular income stream that provides you with money over and above what you need for living expenses. This extra income will be used to pay off your debt. There are also regulations regarding the amount of secured debt you can have (no more than about $900,000) and the amount of unsecured debt you can have (no more than about $300,000). The actual figures change annually according to the Consumer Price Index.
Chapter 13 Bankruptcy Filing More Complex
A Chapter 13 bankruptcy also differs from Chapter 7 in that the scope of the financial statements filed has more depth and breadth. In addition to income, assets, and liabilities, you need to submit extensive information on payments made to creditors, charitable contributions, property-related matters, and so forth. You must also submit a three- to five-year payment plan, outlining how you will repay creditors in the coming years. Because it is extremely important that these documents be accurate (if they aren’t, you may face a charge of fraud), it pays to engage the services of an attorney who is familiar with bankruptcy law and who can guide you through the process.
After Chapter 13 Bankruptcy Approval
Typically, a court-appointed bankruptcy trustee reviews your financial statements and repayment plan to ensure that they are both accurate and reasonable. Once your Chapter 13 bankruptcy is approved, you are allowed to keep your property as long as you meet the repayment schedule. While the repayment plan can be modified or your debts discharged if you find yourself in a hardship situation (such as the loss of a job or major medical expenses), if you don’t meet your obligations then your creditors can ask the bankruptcy court to set aside the Chapter 13 ruling. If that happens, creditors can once again collect on debts by any means possible under the law.
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