What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy, often referred to as a "wage earner's plan," is a legal option under the United States Bankruptcy Code that allows individuals with regular income to develop a plan to repay all or part of their debts. It is specifically designed for those who are struggling to meet their financial obligations but wish to retain their assets, including their home.
Key Features of Chapter 13 Bankruptcy
- Repayment Plan: Debtors propose a repayment plan that lasts three to five years, allowing them to pay back creditors over time.
- Retention of Assets: Unlike Chapter 7 bankruptcy, Chapter 13 allows individuals to keep their property, as long as they adhere to the repayment plan.
- Automatic Stay: Upon filing for Chapter 13, an automatic stay goes into effect, preventing creditors from pursuing further collection or foreclosure actions.
Eligibility Requirements
To qualify for Chapter 13, individuals must have a regular income and have unsecured debts below a specified limit, which is adjusted periodically. Additionally, individuals cannot have filed for bankruptcy relief in the past 180 days due to dismissal for failure to comply with court orders.
Benefits of Chapter 13 Bankruptcy
Some benefits include protecting co-signers from creditors, the ability to catch up on missed mortgage payments, and potential tax advantages. It also provides a structured environment through which individuals can achieve financial stability and rebuild their credit over time.