The two most common types of bankruptcy filed are under
Chapter 7 and Chapter 13. Bankruptcy
under Chapter 13 is considered to be more of a “reorganization” of debts to
gain relief from extreme financial stress.
The Chapter 13 bankruptcy allows the debtor to extend the time and
modify payment plans with creditors in order to ultimately keep property in his
possession. It also can protect
co-signers for loans taken by the debtor.
For example, a gentleman behind on mortgage, credit card,
and child support payments may file for bankruptcy under Chapter 13. This type of filing would allow him to work
with the mortgage company to extend the time it would take to make up the
payments he has missed, as well as work with the credit card company to reduce
his debt owed and extend his time that he pays off the debt, as well as work
with the state to extend the time to make up his missed child support
In order to be eligible to file for bankruptcy under Chapter
13, a person must have a regular income, and secured and unsecured debts must
not exceed approximately $1.08 million and $360,000, respectively. Debts can be restructured with an extended
timeline from 3-5 years. During the time
of the Chapter 13 bankruptcy, creditors cannot have contact with the
filer. Individuals who want to file
under Chapter 13 also much undergo credit counseling before filing. The filer must meet with the assigned trustee
and his creditors and discuss under oath his financial health and payment plan
he desires. A creditor, however, may
object to the payment plan and negotiate an alternative. The trustee can referee the plans between
creditors and the debtor.
Chapter 13 bankruptcy usually takes a few months to be
confirmed. Debtors, however, must begin
payments to the assigned trustee who makes disbursements to the creditors based
on the proposed payment plan – even if it has yet to be approved by the courts
– 30 days after filing. Modifications
can be made by the court as the bankruptcy is confirmed.
Filing for bankruptcy under Chapter 13 is a good
way to preserve property and extend payment times if a debtor has a reliable,