Bankruptcy Blog

30 October 2013

What is Chapter 13 bankruptcy?

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 payments. 

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, regular income. 
Steven H. Phelps  

Steven H. Phelps

Mr. Phelps was admitted to the Texas State Bar in 1992. His early litigation practice was concentrated in the areas of business law, banking and financial services, real estate and labor law. Since 1995, Mr. Phelps enlarged his practice to include the areas of estate planning and title services and most importantly, personal bankruptcy.

Call Steven today to talk about your individual situation during a free consultation.

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