Personal Bankruptcy: Reorganization of Finances
Chapter 13 is the name for one of the several types of bankruptcy protection filed by those who seek financial relief. It’s one of the types of bankruptcy protection that are filed by an individual. Chapter 13 is for someone looking to reorganize their debt.
Another common type of bankruptcy protection that’s filed by individuals is Chapter 7, also known as liquidation bankruptcy. This is as opposed to types of bankruptcy protection that are usually filed by businesses such as Chapter 11.
After debt reaches a certain amount, individuals are no longer qualified to file for Chapter 13 bankruptcy protection. Their debt cannot exceed $383,175.00 in unsecured debt, or $1,149,525.00 in secured debt.
Debtor Proposes Reorganization Plan
The basic idea in Chapter 13 is to give the debtor the ability to propose a plan to reorganize their finances, so as to pay back a significant part of their debt.
This opportunity is only granted to someone who has a steady income, and is therefore more likely to pay back large chunks of their debt. People who have low or inconsistent incomes are rarely granted the ability to file for Chapter 13 bankruptcy protection.
Chapter 13 bankruptcy protection, and the subsequent proposal of reorganization, is done completely with protection from the bankruptcy court in which the debtor files.
If someone is experiencing severe difficulty in paying their debt back to creditors, Chapter 13 can give them an alternative plan of action other than having to liquidate their assets. Chapter 7 bankruptcy protection is the type of bankruptcy protection that deals with liquidation of assets, including property.
Creditors Are Rarely Involved
Once a debtor has put forth a reorganization plan to the bankruptcy court, the court has the right to approve the plan. This is true even if the creditors disagree with the terms. Creditors do however have the benefit of receiving at least as much as they would have gotten had the debtor decided to file for Chapter 7 liquidation. The bankruptcy court will only approve a proposal if it’s in line with the laws delineated in the United States Bankruptcy Code.
The plan describes all the pertinent details in the repayment of the loans. This includes how much of the debt is going to be paid back and which creditors have higher priority in being paid back. Additionally, the plan says how much is included in each payment and how many months it should take to finish the payments.
Once a debtor’s plan has been approved, the debt has to start being paid back to the creditors within 45 days from when the bankruptcy case had started.
Usually, Chapter 13 reorganization plans are for three to five years. They may not be more than five years. Many view Chapter 13 bankruptcy protection as a form of consolidating an individual’s debt.
If debtors are unable to keep up with paying back their debtors, the case is often taken back to the bankruptcy court for further review. In many cases the court will force a liquidation of the debtor’s assets to assist with paying back creditors.