Chapter 13 Bankruptcy: Individuals

Chapter 13 is a repayment bankruptcy.  It is utilized by individuals, and owners of sole proprietorships or other “mom and pop” businesses, not only to obtain a fresh start, but also to retain their assets and reorganize their financial affairs.

For most individuals with debt problems, the major decision is whether to file for protection under Chapter 7 or Chapter 13 of the Bankruptcy Code.

Chapter 7 does not require repayment of unsecured debt; the debts are simply wiped away.  However, Chapter 7 is not available to all debtors.

Chapter 13 for individuals

Chapter 13 is an option for individuals who either have too much disposable income to qualify for a Chapter 7 bankruptcy, or who wish to retain real or personal property with equity that creditors could otherwise reach. We can advise you as to which type of bankruptcy case is the best fit for you.

Chapter 13 repayment plans last a minimum of three years and a maximum of five years, and, generally require that unsecured creditors — such as credit card companies, medical service providers, etc. – be paid a fraction of what they are owed.

IMPORTANT: mortgage payments missed before the filing of a Chapter 13 bankruptcy can be repaid during the Chapter 13 bankruptcy, allowing homeowners to stay in their houses as long as they keep current on their monthly payments as they are due during the bankruptcy.

Chapter 13 debtors send one monthly bankruptcy payment to the bankruptcy trustee’s office; the trustee uses those payments to repay debts that are included in the bankruptcy.  New local rules require that Chapter 13 debtors also send their current monthly mortgage payments to the trustee, who distributes them to the mortgage company.  This helps avoid any confusion as to whether payments to mortgage companies are in repayment of arrearages that accrued prior to the bankruptcy, or are for current obligations.

“This information is general and thus incomplete, and the reader should seek legal counsel for specific legal problems or questions.”