Chapter 13 Bankruptcy

Chapter 13 Bankruptcy is a personal reorganization bankruptcy plan. In a reorganization, the debtor and the bankruptcy court establish a plan for repaying or discharging debts. Unlike a chapter 7 liquidation bankruptcy, the assets are not liquidated, but the debts are also not discharged except as provided by the plan.

Advantages to Chapter 13

A chapter 13 can stop foreclosures and cause an accelerated mortgage to be reinstated. In addition, chapter 13 provides an option for debtors that are not eligible for Chapter 7 bankruptcy under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). In addition, a chapter 13 reorganization can allow the court to restructure the terms of debts, adjusting interest rates, levels of collateral, as well as prevent the creditor from taking action against co-signers or co-debtors. The level of relief offered under chapter 13 will be determined by the repayment plan and the court, and may require partial repayments of certain debts, with the remaineder being discharged.

Drawbacks to Chapter 13

A Chapter 13 remains on the debtors credit report for 10 years, making future access to credit more limited, and the debtor may not seek additional credit without the permission of Chapter 13 Trustee. Even with permission of the trustee, being in a Chapter 13 reorganization may make it difficult to obtain credit. During the 3 to 5 year repayment plan, the debtor will have limited flexibility, as the plan is required to commit every available dollar to debt repayment, and the allowances for permitted expenses may be lower than the debtor is actually paying.