BANKRUPTCY CHAPTER 13

There are five main types of bankruptcy cases set forth in the United States Bankruptcy Code. The two types most commonly used by individuals to file personal bankruptcy are Chapter 7 and Chapter 13.

On this page, we will discuss bankruptcy chapter 13.

_{For a discussion on bankruptcy chapter 7, click here.}

Bankruptcy Chapter 13

It is different from a Chapter 7 because it allows the debtor to submit a "plan" to the trustee that sets for a payment schedule to creditors over time, usually three (3) to five (5) years.

The bankruptcy court must hold a confirmation hearing and determine whether the plan should be confirmed or needs modification in order to be confirmed.

The Bankruptcy Chapter 13 debtor typically remains in possession of the property of the estate and makes payments to creditors through the Chapter 13 trustee. The payments are based on the debtor's anticipated disposable income over the life of the plan (disposable income being the debtor's income minus the debtor's allowed expenses).

Unlike Chapter 7, a Bankruptcy Chapter 13 debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received.

The debtor is protected from lawsuits, garnishments, and other creditor action while the plan is in effect. The discharge is also considerably broader (i.e., more debts are eliminated) under Chapter 13 than the discharge under Chapter 7.

Note that with the amendment to the bankruptcy laws in October, 2005, those debtors whose income exceed their state's "median income" may no longer be qualified to file a Chapter 7 case - and may be required to look to Bankruptcy Chapter 13 for relief.

Each state has a "median state income" (and this number is based upon the number of persons living in the household) - if the debtors' total household income is below the median number (or if their allowable expenses bring the debtors' income below a certain level), the debtors can continue to seek a discharge of their debt through the Chapter 7 process.

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Common Mistakes Before Bankruptcy

There are many common mistakes that are often made before and during the bankruptcy process. Here is a short list of them: