Chapter 13 Bankruptcy

Chapter 13 bankruptcy, also called reorganization bankruptcy, is quite different from Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, most of your debts are wiped out; in exchange, you must relinquish any property that isn't exempt from seizure by your creditors. Chapter13 bankruptcy is filed by individuals who want to pay off their debts over a period of three to five years. This type of bankruptcy appeals to individuals who have non-exempt property that they want to keep. It is also only an option for individuals who have predictable income and whose income is sufficient to pay their reasonable expenses with some amount left over to pay off their debts.

Generally, you are probably a good candidate for Chapter 13 bankruptcy if you are in any of the following situations:

• You have a sincere desire to repay your debts, but you need the protection of the bankruptcy court to do so.
  
  
• You need help repaying your debts now, but need to leave open the option of filing for Chapter 7 bankruptcy in the future. This would be the case if for some reason you can't stop incurring new debt.
  
  
• You are a family farmer who wants to pay off your debts, but you do not qualify for a Chapter 12 family farming bankruptcy because you have a large debt unrelated to farming.
  
  
• You have valuable nonexempt property. When you file for Chapter 7 bankruptcy, you get to keep certain property, called exempt. If you have a lot of nonexempt property (which you'd have to give up if you file a Chapter 7 bankruptcy), Chapter 13 bankruptcy may be the better option.

In filing for Chapter 13, a bankruptcy court will consider your income, debt load, and other financial assets to determine your minimum payments. Depending on your circumstances and your debts, you will pay in full, partially pay, or not pay at all any given number of your individual debts. Any debts that are not paid through the plan most likely will be discharged.

In order to file Chapter 13, you must first seek credit counseling from an approved organization. Upon completion, you will be given certification to file with a bankruptcy court to begin your case. The entire process generally takes about three to five years. To qualify for Chapter 13, you will have to show the bankruptcy court that you will have enough income, after subtracting certain allowed expenses and required payments on secured debts (such as a car loan or mortgage) to meet your repayment obligations.

You can use the following income to fund a Chapter 13 plan:

• income from self-employment
• wages from seasonal work
• commissions from sales or other work
• regular wages or salary
• pension payments
• Social Security benefits
• disability or workers' compensation benefits
• unemployment benefits, strike benefits, and the like
• child support or alimony you receive
• public benefits (welfare payments)
• royalties and rents, and
• proceeds from selling property, especially if selling property is your primary

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