Chapter 13 Bankruptcy

This type of bankruptcy sets a payment plan between the borrower and the creditor monitored by the court. The homeowner can keep the property, but must make payments according to the court's terms within a 3 to 5 year period.

Chapter 13, Title 11, United States Code, more commonly known as Chapter 13, is a chapter of the U. S. Bankruptcy Code governing a form of bankruptcy in the United States. Chapter 13 allows individuals to undergo a financial reorganization supervised by a federal bankruptcy court. The Bankruptcy Code anticipates the goal of Chapter 13 as enabling income-receiving debtors a debtor rehabilitation provided they fulfill a court-approved plan. This is in contrast to the goals of Chapter 7 that offers immediate, complete relief of many oppressive debts. An individual who is badly in debt can file for bankruptcy either under Chapter 7 (liquidation, or straight bankruptcy), under Chapter 13 (reorganization), Chapter 12 (family farmer reorganization), or under Chapter 11. Debtors may also be forced into bankruptcy by creditors in the case of an involuntary bankruptcy, but only under Chapters 7 or 11. However, in most instances the debtor may choose under which chapter to file. The debtor may also choose to convert to another chapter from a 7 or 11 when forced into an involuntary bankruptcy. The debtor's financial characteristics and the type of relief sought plays a tremendous role in the choice of chapters. In some cases the debtor simply cannot file under Chapter 13, as he or she lacks the disposable income necessary to fund a viable Chapter 13 plan (see below). Furthermore, Section 109(e) of Title 11, United States Code sets forth debt limits for individuals to be eligible to file under Chapter 13 the debt limits for filing Chapter 13 of unsecured debts of less than $360,475.00 and secured debts of less than $1,081,400.00. These debt limits are subject to annual cost of living increases and represent values updated through April 1, 2010. Under Chapter 13, the debtor proposes a plan to pay his creditors over a 3- to 5-year period. This written plan details all of the transactions (and their durations) that will occur, and repayment according to the plan must begin within thirty to forty-five days after the case has started. During this period, his creditors cannot attempt to collect on the individual's previously incurred debt except through the bankruptcy court. In general, the individual gets to keep his property, and his creditors end up with less money than they are owed. The disadvantage of filing for personal bankruptcy is that, under the Fair Credit Reporting Act, a record of this stays on the individual's credit report for up to 10 years. During the pendency of a Chapter 13 case the debtor is not permitted to obtain additional credit without the permission of the bankruptcy court. Moreover, creditors may not be willing to risk lending money to such an individual. However, this disadvantage is not unique to Chapter 13; it may also apply to individuals currently in a Chapter 11 case, Chapter 12 case or those who are in or have recently been in a Chapter 7 case. The advantages of Chapter 13 over Chapter 7 include the ability to: stop foreclosures although a foreclosure would be reinstated upon completion of the bankruptcy; achieve a super discharge of debts of kinds not dischargeable under Chapter 7; value collateral; bifurcate the security interest of creditors in certain property that creditors are either charging too much interest for, or are over-secured, or both, and leading to a cram down modification of the debt; prevent collection activities against non-filing co-signers (co-debtors) during the life of the case. A Chapter 13 plan is a document filed with or shortly after a debtor's Chapter 13 bankruptcy petition. The plan details the treatment of debts, liens, and the secured status of assets and liabilities owned or owed by the debtor in regard to his bankruptcy petition. In order for plans to take effect, it must meet a number of requirements. These are specified in ยง 1325 and include: