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How Chapter 13 works

Chapter 13 bankruptcy comes under Title 11 of the U.S. Code. Also known as reorganization bankruptcy or a wage earner's plan, Chapter 13 helps you impose a debt management plan on your creditors. Chapter 13 allows individuals to reschedule their debt and span it over the duration of the payment plan. Instead of selling assets to repay the debt, the debtor may use their gross income. Under Chapter 13 you may get to keep your assets. If you meet all necessary requirements, the creditors will have to follow the proposed debt management plan.


Chapter 13 may be used by debtors who don't pass the income standard requirement of Chapter 7. Note that Chapter 13 bankruptcy has its own eligibility criteria which must be met. Only individuals and married couples may file a petition under Chapter 13. Businesses and corporations are not eligible to apply.

Chapter 13 bankruptcy starts with filing a petition with the bankruptcy court. The debtor may suggest a payment plan based on installments spanning over a 3 to 5 year period. The payment plan's duration depends on whether the debtor's gross income is above or below the median income for his or her respective state. The plan does not exceed 5 years. During the course of the payment plan, it is illegal for creditors to start or continue collection efforts.

The discharge law of Chapter 13 has undergone major changes over time. The scope of discharge is much broader for Chapter 13 than it is for Chapter 7. Seeking guidance from an experienced attorney might benefit you in the long run. A good attorney will discuss the available options you have so that you make a decision that is best for you.


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