The chapter 13 bankruptcy, which is sometimes known as the reorganization bankruptcy is somewhat different from the chapter 7.
What is Chapter 13?
In chapter 7 bankruptcy, most of the debts are discharged and in exchange, one needs to relinquish the property which is not exempt from the seizure by creditors. On the other hand, in chapter 13, one does not need to hand over the property but one must use the income for paying some of what one owes to the creditors from 3 to 5 years, as per the size of income and debts.
Before one can file for bankruptcy, it is better to get credit counseling from a reputed agency approved by the state. Such agencies are permitted to charge some fees for the services provided but they need to offer counseling without charging any fee or at a reduced rate in case the debtor cannot afford to give high fees. Chapter 13 bankruptcy is also not for every individual. Due to the fact that chapter 13 needs one to use the income for repayment some or entire debt, one will need to prove to bankruptcy court that one can afford to give the payment obligations. If the income is really irregular or low, the bankruptcy court may not allow one to file for chapter 13 bankruptcy.
The most crucial factor in the chapter 13 is the repayment plan. The repayment process will define in full detail how much and what amount one will pay each debt. There is actually no official type of repayment plan but a large number of the courts have specially made their forms. The overall length of repayment plan actually depends on the earning capacities and how much one owes to the creditors. In case the average income for a month over six months before the date of filing bankruptcy is above median income of the state, one will have to propose the 5 years plan. But if this income is low, one can propose the 3 years plan.
The chapter 13 bankruptcy plan needs to pay some debts in totality as well. Such debts are known as the priority debts as they are taken to be sufficiently crucial to jump ahead of the bankruptcy repayment limit. These priority debts include alimony, wages that one owes to employees, specific tax obligations and child support. The plan needs to highlight that any disposable income one has left after paying the required payments will eventually go towards paying the unsecured debts like medical bills or credit card bills. One does not have to pay all debts completely. All you need to do is to show you are putting the remaining income towards the repayment plan.
The repayment plan of chapter 13 needs to include the regular payments on the secured debts like mortgage or car loan and repayment of the arrearages on debts. Once one finishes the repayment plan, all the remaining debts which are eligible for any discharge can be wiped out. Before one can get the discharge, one must show before the court that one is current on the alimony and/or child support obligations and that one has completed the budget counseling session.
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