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Understanding Chapter 13 Bankruptcy

Overwhelming debt can create significant stress, leading to health, marital and career problems. Sadly, while most people are aware of bankruptcy, many put off talking to an attorney because of misconceptions about how the process works. For example, debtors who own homes or have other assets may assume that they will lose their property during bankruptcy.

The truth is, however, that while it is possible that some assets may be subject to liquidation in a Chapter 7 bankruptcy, this is not true in Chapter 13, a type of bankruptcy designed to help people manage their debt while keeping their assets.

Chapter 13 Is a Repayment Plan

In Chapter 13 bankruptcy, debtors work with their attorney and bankruptcy trustee to develop a three or five-year debt repayment plan. During this time, the debtor makes payments on his or her debt and is protected by the automatic stay against collection efforts. At the end of the plan, the balances of eligible debts will be discharged. Because Chapter 13 cases are often complex, it is generally advised that debtors seek the advice of an attorney.

Chapter 13 Bankruptcy Protects Assets

Unlike Chapter 7 bankruptcy, in which you may be required to liquidate assets to pay off your creditors, you'll be able to keep your property during a Chapter 13 bankruptcy. Keep in mind, however, that you cannot take on additional debt during your repayment plan: If maintenance costs are a concern, you may want to talk to your lawyer about other options.

Chapter 13 Isn't for Everyone

Not everyone qualifies for Chapter 13 bankruptcy:

  • Businesses do not qualify for Chapter 13 bankruptcy, only individuals (married couples can file jointly). If you operate a sole proprietorship or are self-employed, however, you may still be eligible for Chapter 13.
  • Your secured and unsecured debts must be under certain thresholds. If your debts exceed these amounts, you can file for Chapter 11 bankruptcy instead.
  • You must have a steady, consistent income: If you do not make enough to reasonably afford a repayment plan, Chapter 13 is not for you.

A bankruptcy attorney can evaluate your situation and let you know if Chapter 13 is an option for you. The attorney can also recommend other types of bankruptcy if a repayment plan is not possible or in your best interests.

If Chapter 13 bankruptcy appeals to you, or you have questions about whether you qualify for this type of debt relief, contact us. We offer compassionate, respectful and professional legal services. We guarantee our work and can help you make the best decision for your needs and circumstances.