If you have enough income left over to make some payment toward your debts after you meet your monthly living expenses, the law requires you to file a Chapter 13 bankruptcy reorganization plan instead of a Chapter 7. Homeowners can also keep their homes and cars when they file for a Chapter 13 bankruptcy.
The Chapter 13 Repayment Plan
The court and the trustee have to approve your Chapter 13 repayment plan. The plan reorganizes your debts into more manageable payments. You make a monthly payment to the trustee. The trustee distributes your monthly payments to the people you owe money to, usually over three or five years. Each creditor's portion is generally a little less than it would have billed you if you hadn't filed for bankruptcy.
Chapter 13 Reorganization
In a Chapter 7 bankruptcy, the trustee sells your property and gives the money to your creditors. This doesn’t happen with a Chapter 13 reorganization plan. You can keep your property, such as your home or your car.
Chapter 13 Protects Your Co-Debtors
If you jointly owe a debt, such as with your spouse, your Chapter 13 bankruptcy also protects that person from creditors trying to collect the debt. As long as you are making your monthly payments to the bankruptcy trustee, and those creditors are receiving something, they can't try to get more money from your co-debtor.
Personal Bankruptcy Exemptions
At the end of your three-year or five-year reorganization plan, you might still owe your creditors some money. Your monthly payments from your extra income may not have been enough to pay everyone all that you owe. When this happens, your Chapter 13 bankruptcy erases the balance of your debt. Your creditors have to accept that, because they received something rather than nothing, as they would have if you had filed a Chapter 7 bankruptcy instead.
A Personal Bankruptcy Lawyer Can Help
The law surrounding Chapter 13 personal bankruptcy is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a bankruptcy lawyer.