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When it comes to debt relief, consumer debtors have two choices—Chapter 7 or Chapter 13 bankruptcy. Both can be advantageous, depending on your financial situation. When your lawyer recommends filing under Chapter 13, there is usually a well founded reason. Below are answers to ease your confusion and worries.

A Guide to Chapter 13 Bankruptcy

How is Chapter 13 different from Chapter 7?

A Chapter 13 filing is called a reorganization of your debts, while Chapter 7 is a liquidation of any non-exempt assets, which are then used to pay creditors. The former aims to settle most or all creditor claims through a three- to five-year repayment plan using the debtor’s future income and earnings and allows the Debtor to keep non-exempt property. The latter doesn’t. However, Chapter 7 is utilized far more than Chapter 13, because most debtors have no assets they will lose and therefore do not need to arrange for repayment.

Bear in mind that a Chapter 13 bankruptcy does not completely relieve you of debts, wherein a Chapter 7 filing most obligations are discharged. Chapter 13 adjusts repayment, stops the creditors’ demands for immediate payment, and can lead to a partial discharge of your debts. Chapter 13 plans must account for non-exempt assets by paying creditors back to the extent of the value of the non-exempt asset, wherein Chapter 7 requires the non-exempt asset to be liquidated and the proceeds used to pay creditors

What are its advantages?

One advantage of Chapter 13 is to stop foreclosure proceedings or repossession of your properties. Under Chapter 13, you can make up missed loan or delinquent mortgage payments by repaying the delinquent payments over time, allowing you to keep the property. It also stops interest from accruing on tax debts and lets you maintain ownership of valuable non-exempt property.

What is essential in filing Chapter 13?


chapter 13 bankruptcyTo file Chapter 13, you must have a regular source of income since that income is used to repay the debts. Along with your Petition, you must also submit a Chapter 13 Plan that utilizes all your disposable income, after ordinary living expenses. Once the Plan is confirmed, the Trustee will distribute funds to the creditors.  The Trustee also gets a fee, which is part of your weekly or monthly Plan payment.  

Who is eligible for Chapter 13 bankruptcy?

Only individual consumer debtors can file under Chapter 13; for corporate or business debtors, they file under Chapter 11. If you have disposable regular income to apply against debts, you may be eligible for Chapter 13. Discuss with your Bankruptcy lawyer the best possible solution, particularly if you have assets to safeguard. He or she will analyze your situation and advise on which Chapter to file.

 

If you think Chapter 13 bankruptcy is the right debt relief option, consult with seasoned Bankruptcy lawyer Thomas A. Corletta, Attorney & Counselor at Law. Headquartered in Rochester, NY, he has offered legal advice and representation in Chapter 7 and Chapter 13 bankruptcy cases for nearly 40 years. Call (585) 546-5072 to set an appointment or visit his website today.

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