Chapter 11 Bankruptcy Chapter 7 Bankruptcy Chapter 13 Bankruptcy
What is Chapter 13 bankruptcy?
Chapter 13 bankruptcy is the legal procedure in which a debtor undergoes a
personal financial reorganization with the help of the court. In this case, the
debtor is able to keep all of his or her property and the bankruptcy court
issues a plan for the individual to pay off his or her debt over the next three
to five years. The court also protects the debtor from creditor's collection
efforts and lawsuits.
Individuals who have financial problems with their business often have personal
money issues as well. The Chapter 13 plan is only for individuals, it cannot be
used for businesses. In order to be eligible for a Chapter 13 plan, you have to
have a salary, your unsecured debts cannot total more than $339,900, and your
secured debts cannot total more than $1,010,650.00.
When you file for Chapter 13 bankruptcy with the bankruptcy court, a trustee is
assigned to your case. You are required to pay the trustee administration fee,
which is no more than ten percent of the debts you owe in addition to your
debts, which are now consolidated in court. All your debts, plus the trustee
fee, are added together and then divided by 36, 48, or 60 months and this amount
is what you owe the court every month. Since you are a salaried individual, the
court sets up a payment plan through your employer, who makes direct payments to
the trustee on your behalf.
The advantages of a Chapter 13 plan are that your lenders can no longer bother
you and you do not need to pay off the whole debt. Depending on the plan that
the court decided on for your individual case, you sometimes only need to repay
20 to 40 percent of the original debt to the court. Since this plan is a
reorganization of your finances and not a straight bankruptcy (Chapter 7), you
are allowed to keep your assets while you repay debt.
The main disadvantage of filing for a Chapter 13 plan is that your credit score
is destroyed. Although Chapter 13 is not a straight bankruptcy, it still looks
like one. Credit-reporting agencies report all bankruptcies, including Chapter
13, for ten years on your credit reports. Therefore, you will have a substantial
amount of trouble trying to get additional loans.
Nearly 80% of those who file for Chapter 13 plans do not make all their payments
on time and need to file for Chapter 7 liquidation, or straight bankruptcy,
anyway. Therefore, it is essential to stick to your payments so that you do not
find yourself in an even worse situation!