Chapter 13: Individual Debt Adjustment

Chapter 13 of the federal Bankruptcy Code offers individuals with regular income (usually but not necessarily wage or salary income) a means to repay their debts over time, either in full or in part. A repayment plan is filed with the Court. If the Court is satisfied that the Plan is the debtor's best effort (even though it may not repay all creditors in full), and each creditor gets at least as much as it would have gotten in a liquidation, the Court will approve the Plan whether or not creditors agree to it.

Under an approved Chapter 13 Plan, the debtor makes a monthly payment to a court-appointed trustee, who then pays each of the creditors according to the Plan. The repayment period is usually three to five years. 

As with Chapter 7, creditors cannot take any action against the debtor or the debtor's property without first presenting the bankruptcy court with sufficient grounds to show that the automatic stay should be terminated (although there may be exceptions to this where there has been a recent prior bankruptcy). In addition, Chapter 13 prevents creditors from taking any action against a codebtor or guarantor who has not filed bankruptcy.

A Chapter 13 debtor may be able to retain property -- such as a family residence -- that otherwise could be available to satisfy creditors' claims. 

The bankruptcy process can be complicated, so it is always advisable to consult a bankruptcy attorney for prebankruptcy planning and before actually filing a bankruptcy petition.


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