CHAPTER 13 BANKRUPTCY LAWS
There are five main types of bankruptcy cases set forth in the United States Bankruptcy Code. Here we discuss Chapter 13 Bankruptcy Laws which is one of the 2 types of bankruptcy most commonly used by individuals.
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Chapter 13 Bankruptcy LawsIn contrast to the Chapter 7 Bankruptcy, Chapter 13 bankruptcy laws (a debt repayment type of bankruptcy), enable the debtor to keep certain assets, such as a house or a car, by making payments to the trustee and/or the secured creditor over time.
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, under Chapter 13 bankruptcy laws the 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 at Chapter 13 Bankruptcy laws for relief from debt.
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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