Chapter 13 Bankruptcy
Some individuals may prefer to file a Chapter 13 bankruptcy. Often called debt reorganization, filing a Chapter 13 bankruptcy is available to debtors who have a regular income and want to pay some or all of their debts over time. This type of bankruptcy is only available to individuals or sole proprietors. While one spouse can file (and not the other), the debtor filing Chapter 13 bankruptcy is required to disclose his or her spouse’s income.
Once the petition is submitted, a stay goes into effect, which stops creditors from pursing any collection actions against a debtor. After that, an individual filing Chapter 13 bankruptcy creates a plan outlining the ways that he or she proposes to pay off his or her debts and then submits it to the court. This plan is then brought to a hearing that the debtor must attend. While creditors can also attend this meeting to ask questions, they often do not.
If the plan is approved by the judge, the debtor is allowed to make scheduled lump-sum payments to the court over the course of three to five years according to the schedule that has been outlined and approved. The individual who has filed does have to live on a budget, but after successfully paying the agreed-upon payments to the court for three to five years, the debt is discharged.
The most common reasons you might consider filing a Chapter 13 bankruptcy are:
- To stop foreclosure and save a home or car should you get behind on payments.
- If you fail to pass the means test required to qualify for Chapter 7 bankruptcy.
- If you are upside-down on your investment in your house, filing a Chapter 13 bankruptcy can be used to strip off a second trust deed or other junior leans against your property.
- Automobile loans can be reduced to fair market value of the vehicle.
- To protect co-debtors (such as a co-signing spouse or other individual) from being harassed by creditors and collection by virtue of reorganizing and making payments on a debt.
- To avoid liquidating non-exempt assets.
The Law Offices of Steven Brian Davis can advise you on the best type of bankruptcy to file. In many cases, filing a Chapter 13 bankrutpcy (debt reorganization) can give a debtor necessary relief without losing valuable assets.
