Understanding Chapter 13 Bankruptcy: Details Every Debtor Deserves To Know

Bankruptcy is never an easy step for anyone to take, and it is not one that should be taken blindly. This article is designed to provide an overview of one particular type of bankruptcy: Chapter 13. Well suited to individuals with a stable income who don’t want to lose their assets, Chapter 13 is an alternative to the more extreme Chapter 7. This article explains:

• What Chapter 13 bankruptcy is and who it is for (it might very well be you).
• The advantages, disadvantages, and debts discharged by Chapter 13 Bankruptcy.
• What you can expect during a Chapter 13 Bankruptcy.

What Is Chapter 13 Bankruptcy And Who Is It Best Suited For?

The first and most important thing to remember about Chapter 13 bankruptcy is that it is for individual filers only. It exists primarily as a less drastic alternative to Chapter 7 bankruptcy to help you get out from under your debts. Technically, you could also do a Chapter 11 bankruptcy, but those are primarily intended for businesses and much less common for individuals.

In a Chapter 7 bankruptcy case, a trustee is appointed who is responsible for marshaling your assets and using them to pay down debts. During a Chapter 13 bankruptcy, your trustee helps you, the debtor or individual filing, to make a debt repayment plan.

If it is approved, you enter into a payment plan whereby you will devote a calculated percentage of your income every month to the trustee to pay to your creditors. The duration of the plan can be as short as three years, or it can last longer, up to five. After three to five years, at the end of the payment plan, the remainder of the debt is then discharged.

What Debt Is Discharged In Chapter 13 Personal Bankruptcy?

The rules for a Chapter 13 bankruptcy discharge are much the same as Chapter 7, which means that not all debts can be discharged. No debts related to fraud, child support, student loans, or other secured debts can be discharged. Over the course of the repayment plan, the money paid will go towards reimbursing the dischargeable debts disclosed at the start of the process, which will be fully discharged at the end.

What Is The Process Of A Chapter 13 Bankruptcy?

Once you file for Chapter 13 bankruptcy, a special Chapter 13 trustee will be entrusted to oversee your case. When you file your petition, you also file the schedules of your assets and your statement of financial affairs, which will be reviewed by the trustee.

Then, you will prepare a payment plan for review by the court and the Chapter 13 trustee. This plan is the core of your bankruptcy, and it must be followed.

Assuming it is approved, you will pay a percentage of your income to the Chapter 13 trustee each month. They will, in turn, use those funds to pay your eligible creditors. Once you complete your payment plan, assuming you did not miss any payments throughout, the remainder of your debts can be discharged.

What Are The Pros Of A Chapter 13 Bankruptcy?

On the surface, Chapter 13 bankruptcy seems to offer debt relief without risk. Most people who have to content themselves with Chapter 13 bankruptcy do so with the perceived benefit that none of their assets are technically at risk. However, you are merely rebuying these assets from the bankruptcy estate through your payment plan.

Some debtors have a very substantial amount of equity in their house or have a very valuable and sentimental collection of some sort of valuable pieces of jewelry that they do not want to lose to a Chapter 7 Bankruptcy. Chapter 13 offers you a way to maintain control of those assets while still getting a discharge.

In reality, however, most debtors would be better served by Chapter 7 if they are eligible. Better still, through careful planning with the assistance of an experienced bankruptcy attorney, they can still keep control of at least their most important assets. This is, of course, if the timeline of their debts and the economic pressures that they are under allow them to undertake such planning efforts.

What Assets Can I Keep In The Chapter 13 Personal Bankruptcy?

The main advantage of Chapter 13 bankruptcy is that you can, ideally, keep all your assets. Basically, a Chapter 13 plan amounts to pledging a portion of your future income in lieu of giving up your assets. Theoretically, as long as you are able to complete your payment plan, none of your current assets are at risk from your bankruptcy.

What Are The Disadvantages Of A Chapter 13 Bankruptcy?

The disadvantages of a Chapter 13 bankruptcy mirror the benefits. You will be devoting a portion of your income for the next three to five years towards repaying those debts.

For most individuals who are not business bankruptcy clients, the idea of interrupting their cash flow for several years is distasteful and impractical. After all, who knows what the next five years will bring?

Furthermore, if you fail to meet your Chapter 13 payment plan on a routine basis, you could have your case dismissed without a discharge. Then, you will have endured all the downsides of having filed for bankruptcy without any of the upsides.

While perhaps well-intentioned by the federal government and by the various lawyers that practice it, Chapter 13 often seems to be bad for the debtor and good for creditors and bankruptcy lawyers.

How Long Does A Chapter 13 Bankruptcy Take?

The actual bureaucratic proceedings involved in Chapter 13 bankruptcy take about four to six months, about the same as for Chapter 7. You have to file and have a meeting of creditors, then you file your statement of financial affairs and your schedules, just like in Chapter 7.

Assuming that your Chapter 13 plan is approved, the process lasts as long as you continue to make your payments. The debtor’s participation in the proceedings is really only over when it comes time to apply for a discharge at the end of the plan.

The downside of Chapter 13 is that those plan payments can take a very long time to complete, depending on what you propose and the amount of assets you are looking to shield. You are looking at somewhere between three to seven years of payments, which means the bankruptcy process itself takes quite a long time.

For more information on Filing A Chapter 13 Bankruptcy In Nevada, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (702) 703-1540 today.