What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is a three to five year long repayment plan for your debt. In Chapter 13 bankruptcy, you are permitted to keep some, or even all of your property, which makes it the preferred method of bankruptcy for those who are behind on their payments but want to keep their home or car.

Chapter 13 is not for every bankruptcy applicant. In Chapter 13, you have to use your income to repay a percentage of your debt and you have to prove that you can afford to make the plan payment, as well as your normal living expenses  This is why it’s commonly referred to as the “Wage Earner’s Plan.” During the 3 to 5 years that you are engaged in bankruptcy, you will be on a budget approved by a trustee that is appointed by the bankruptcy court. During this time, if you fail to make your payments, your unsecured debt will not be erased or discharged.

As a debtor, your qualification for Chapter 13 is measured by a mathematical formula called the “Means Test”. The Means Test considers your monthly income, your household size, the amount of, and type of, debts you have, and your monthly disposable income. The Means Tests also establishes the payments you will most likely make to the trustee under Chapter 13.

Just like Chapter 7, Chapter 13 bankruptcy cannot absolve the debtor of certain “priority” debts, like student loans, taxes, alimony, and child support. It can, however, help the debtor with “unsecured” debts such as medical bills, credit card debt, as well as back payments on secured debt.

Chapter 13 Bankruptcy can be confusing.  Contact Merritt Webb for a free consultation and get your questions answered. We strive to make the process as painless as possible.

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