Chapter 13 Bankruptcy Code, also known as Wage-earner’s Plan, Repayment Plan or Debt Adjustment is a restructuring type of bankruptcy wherein debtors are allowed to design a three-year payment proposal during which time they can settle their debts (this plan can be extended up to five years if approved by the court). This proposal, which is actually a restructured payment scheme, is aimed at helping debtors make debt payments more affordable for them. Unlike Chapter 7 bankruptcy, wherein debtors will need to submit their “non-exempt” properties for liquidation, debtors who file for bankruptcy under this chapter are allowed to keep their properties and assets; business owners are also allowed to continue operating their business, especially if it is a major source of their income and payment for debts.
Besides forbidding creditors from starting or continuing any effort to collect payment (while the chapter 13 plan is in effect), there are many other advantages offered by this chapter. As listed in the website of the United States Courts (uscourts.gov), these advantages include:
- Keeping a debtor’s home from getting foreclosed and a chance for debtors to pay past due mortgage payments over time.
- The chance to reschedule secured debts and extend payments for these over the approved chapter 13 plan (either three years or five years).
- Protection for co-signers or a third party who is equally liable with the debtor.
- Coursing all plan payments to a chapter 13 trustee instead of to the creditors directly. This keeps debtors from having direct contact with creditors.
Individuals, who may be operating an unincorporated business or are self-employed, are eligible for chapter 13 protection (corporations or partnerships do not qualify under this chapter), but only if their secured debts are less than $1,149,525 and their unsecured debts, less than $383,175 (these figures are occasionally adjusted in order to reflect changes in the consumer price index.
Ryan J. Ruehle Attorney at Law, LLC, mentions in his website how incredibly common it is “for people to avoid filing for bankruptcy in fear that bankruptcy will complicate their credit status or signify that they have somehow failed financially.” On the contrary, people can use the bankruptcy process to their advantage and work their way toward financial freedom.