What Is Chapter 13?

Chapter 13 is a type of bankruptcy proceeding in which debtors agree to a reorganization of their financial obligations under the supervision of a court. Individuals and married couples, even if self-employed or operating an unincorporated business, are eligible to file for Chapter 13 bankruptcy. Here's how Chapter 13 works,✨ in addition to how it compares with othꦰer types of bankruptcy.

How Chapter 13 Works

To apply for a Chapter 13 澳洲幸运5官方开奖结果体彩网:bankruptcy, also known as a 澳洲幸运5官方开奖结果体彩网:wage earner's plan, debtors must compile a list of all their creditors along with the amount of money they owe to each, a list of any property they own, information about their income and its sources, and details about their monthly expenses.

With the aid of a court-appointed 澳洲幸运5官方开奖结果体彩网:bankruptcy trustee, they then submit a plan for repaying their creditors within a period of three to five years. In most circumstances, the repayment plan must provide a substantial payback to creditors—at least equal to what they would receive under other forms of bankruptcy. It can, if needed, use 100% of the debtor's disposable income for repayment.

The debtor then pays an agreed-upon sum of money each month to the trustee, effectively consolidating the debts into a single monthly payment. The trustee, in turn, distributes the money to the debtor's creditors. Debtors have no direct contact with their creditors under Chapter 13 protection.

At the end of the repayment period, any remaining debts, with certain exceptions, will be 澳洲幸运5官方开奖结果体彩网:discharged by the court, meaning that the debtor is under no obligation to pay them.

Types of Debt in Chapter 13

Under Chapter 13, debts, or claims, fall into three categories: priority, secured, and unsecured.

Priority debts include tax obligations, alimony, and child support.

Secured debts are those backed by some form of 澳洲幸运5官方开奖结果体彩网:collateral. In the case of a mortgage, for example, the home itself typically serves as collatera🌌l. With a car loan, it's usually the vehicle. When a debt is secured, the creditor has a right to seize the collateral if the debt goes unpaid.

Unsecured debts aren't backed by collateral. 澳洲幸运5官方开奖结果体彩网:Credit cards are the most common example of unsecured debt.

In a Chapter 13 bankruptcy, the first two types of claims—priority and secured—must be paid in full unless the creditor agrees otherwise. Unsecured debt, however, doesn't have to be repaid in full and often isn't.

Chapter 13 Bankruptcy Example

After Eric lost his job, and his husband, Joey, suffered a medical crisis that left him unable to work, they fell behind on their mortgage and were $25,000 in arrears. The bank had initiated 澳洲幸运5官方开奖结果体彩网:foreclosure proceedings just as Eric received a job offer.

By filing for Chapter 13 bankruptcy, they were able tꦫo stop the foreclosure and remain in their home. With their now-stead🌳y income, they are able to pay their mortgage each month while also spreading the $25,000 back payment over a five-year period.

However, if they fall behind in their payments in the future, the bank could foreclo♓se again.

Chapter 13 vs. Chapter 7

澳洲幸运5官方开奖结果体彩网:Chapter 7 is the most common form of bankruptcy, as it allows individuals to erase most of their existing debt and start afresh. Unfortunately, Chapter 7 filers are often required to surrender their home. Once a Chapter 13 bankruptcy is initiated, any home foreclosure proceedings are ceased. For that reason alone, a debtor who wishes to keep their home may choose Chapter 13 ove🌠r Chapter 7.

Chapter 13 vs. Chapter 11

Chapter 11 bankruptcy is another plan through which debt is restructured with court approval and paid back over time. Although it's available ꧋to individuals, couples, and businesses, Chapter 11 is filed most frequently♌ by businesses because it's expensive and complicated.

Chapter 13 gives filers who make too much money to be considered for Chapter 7 澳洲幸运5官方开奖结果体彩网:an easier a🅘lternative to Chapter 11. Filing for Chapter 13 bankruptcy may also protect any 澳洲幸运5官方开奖结果体彩网:co-signers of the debtor's loans from being held responsible for them.

The Bottom Line

Chapter 13 bankruptcy can allow individuals or couples to restructure and repay their debts without necessarily losing their homes or other property. Like all forms of bankruptcy, however, it can have serious long-term consequences, so anyone considering it should also look at the potential 澳洲幸运5官方开奖结果体彩网:alternatives first.