Chapter 13 Bankruptcy is only available to wage earners, the self-employed, and sole proprietors (one-person businesses). To qualify for Chapter 13, you must have a regular income, have filed all required tax returns for tax periods ending within four years of your bankruptcy filing, and meet other requirements set forth in the bankruptcy code.
When filing under Chapter 13, the debtor submits to the bankruptcy court a proposed payment plan that would use their income to pay their creditors back over time. While creditors may object to the repayment plan, once it is approved by the bankruptcy court, they are required to follow it. This payment plan restructures the debt and usually lessens the amount that is needed to be paid and extends the repayment timeline to a three to five-year schedule without additional interest or penalties.
If the debtor has a stable income and can manage the monthly payments, Chapter 13 Bankruptcy can make the debt more manageable and give debtors the opportunity to save valuable property, such as a house or a car, from foreclosure or repossession. The flexibility of the repayment schedule may make Chapter 13 an appropriate type of bankruptcy for those who have more to lose than what they owe.
Additionally, Chapter 13 Bankruptcy also provides for the settlement of certain types of debt, including those arising from divorce and certain tax liabilities. Additionally, without the permission of the bankruptcy court, creditors cannot claim the debt from a “co-debtor”, which can be a relief for those who have agreed to take on joint responsibility for a debt.
As in Chapter 7, some debts cannot be repaid, including student loans, debts arising from fraud, child support, personal injury or death from drunk driving, debts not listed in the bankruptcy filing, and losses for aggression.
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