Bankruptcy : Chapter 13

The bills are stacking up, demanding calls and letters are arriving with increasing frequency, and despite the best of efforts, the overdue debts just cannot be paid when due. In such cases, filing bankruptcy under Chapter 13 of the Bankruptcy Code may provide a solution to what seems like an insurmountable problem. If you are facing serious financial challenges, it is very important that you seek the counsel of an experienced bankruptcy attorney to determine whether filing under Chapter 13 may be right for you. Once considered a last resort, bankruptcy has evolved into an accepted method of resolving serious financial problems.

Bankruptcy law provides two basic forms of relief: (1) liquidation; and (2) rehabilitation, also known as reorganization. Most bankruptcies filed in the United States involve liquidation, which is governed by Chapter 7 of the Bankruptcy Code. A reorganization or rehabilitation bankruptcy under Chapter 11 or 13 of the Bankruptcy Code is, however, the option often preferred by the courts, and creditors may be provided with a better opportunity to recoup what they are owed under these methods.

When is "Reorganization" or "Rehabilitation" the Right Choice?

A consumer may choose bankruptcy under Chapter 13 if he or she has a stable income, believes the financial crisis is temporary, and wants to repay at least some debt. The debtor must have less than $307,675 in unsecured debt and $922,975, in secured debt, however, in order to be eligible for Chapter 13. A Chapter 13 proceeding, often called a wage-earner plan, is, like a Chapter 7 bankruptcy, initiated by filing a petition. Also as in Chapter 7 cases, the filing of the petition stops the creditors from trying to collect on their debts. The debtor then has time to file a plan that sets forth the details of how he or she intends to pay off the creditors in the next three or five years, depending on the amount of the debts, the debtor's ability to pay, and the specifics of the plan. Creditors may ask questions about and object to the plan. If the court approves the plan, however, the creditors can take no action outside the plan's scope to collect their debts. Once the plan is completed, the debtor is entitled to a discharge, which releases him or her from all debts provided for or disallowed under the plan. In other words, creditors have no further rights with regard to discharged obligations.

Chapter 13 has certain advantages over Chapter 7 in consumer bankruptcies. For example, there is no eight-year waiting period before a consumer can file for bankruptcy again after filing for Chapter 13 relief. Also, Chapter 13 allows the debtor to discharge more types of debts than Chapter 7 does. And under Chapter 7, the court may order that all of the consumer's assets be sold, whereas under Chapter 13 the debtor may be able to retain more of his or her assets. A consumer's choice between Chapter 7 and Chapter 13 isn't necessarily his or hers to make: there is a financial means test to determine whether you will be allowed to liquidate under Chapter 7.If it is determined that the wherewithal exists to pay most of one's debts, the debtor will be compelled to make a plan under Chapter 13 rather than liquidate under Chapter 7. Also, the choice is not necessarily permanent; once bankruptcy proceedings have begun, a case may be converted to a different chapter. Once converted, however, the case may not be converted back again. Skilled and knowledgeable bankruptcy attorneys can advise consumers as to which chapter would be the best choice for them.

Chapter 11, which also allows for rehabilitation or reorganization, generally applies to individual debtors with excessive or complex debts, or to large commercial entities like corporations. Chapter 13, by contrast, generally applies to individual consumers with smaller debts. Farmers and municipalities may also seek reorganization through the Code's special chapters applicable to them, Chapters 12 and 9, respectively.

Conclusion

Lawyers specializing in bankruptcy law can help consumers struggling with increasing and inescapable debt find their way to a better financial future. Experienced bankruptcy attorneys have the knowledge and expertise required to help their clients get out from under formidable debt and emerge as productive citizens, and can advise them on whether a Chapter 13 wage-earner plan is the right course of action in their particular circumstances.

DISCLAIMER: This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

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