What Is Chapter 13 Bankruptcy?

How Does Chapter 13 Bankruptcy Work?

Chapter 13 bankruptcy works by allowing debtors to make a debt restructuring plan to pay back their creditors.

This option is usually taken by those with a steady enough income to afford to undertake a repayment plan.

Chapter 13 bankruptcy works by giving debtors who can feasibly afford to repay their creditors an opportunity to renegotiate the terms of their debt before having their assets seized.

How to File Bankruptcy Chapter 13

To file Chapter 13 bankruptcy, you will need to petition the bankruptcy court serving the area in which you live.

The best first step is to contact an accredited bankruptcy lawyer to figure out your case.

What Is Chapter 13 Bankruptcy FAQs

Bankruptcy is a legal proceeding in which a debtor declares their inability to pay back their creditors. 
There are three common types of bankruptcy known as “chapters” in the U.S. bankruptcy code, Ch. 7, Ch. 11, and Ch. 13, each with varying criteria and consequences.
Chapter 7 is known as a liquidation bankruptcy. Most of your property will be sold to pay off your debts, then whatever debt in excess of the value of your liquidated property will be cleared.
Chapter 13 bankruptcy is a reorganization bankruptcy. With Chapter 13, you are able to keep your personal property and reorganize your debts to a payment schedule that enables you to pay back your creditors over time (often 3 to 5 years).

What is Bankruptcy?

What Is Bankruptcy? The Three Chapters of Bankruptcy

There are three common types of bankruptcy known as “chapters”in the U.S. bankruptcy code, Ch. 7, Ch. 11, and Ch. 13, each with varying criteria and consequences.

Ch. 7 Bankruptcy

The most common type of bankruptcy is Chapter 7.

Chapter 7 bankruptcy is known as “straight”or “liquidation”bankruptcy.

It is designed to give a “fresh start”by discharging debts that cannot be repaid through the liquidation of the debtor’s assets.

Upon filing Chapter 7, a trustee is appointed to sell the debtor’s non-exempt assets and distribute the proceeds to creditors.

For individuals, the law exempts certain assets such as retirement funds, primary residence, tools for their trade, and personal vehicles from being liquidated to pay back creditors.

This pays back creditors some of what they are owed and protects individuals from having all of their livelihood taken from them.

Ch. 11 Bankruptcy

Chapter 11 bankruptcy is primarily for companies, allowing them a break on paying their debts in order to restructure, come up with new terms for paying their creditors, and become profitable again.

This allows companies to stay afloat while coming up with a new way to pay back creditors.

Chapter 11 is the most complex and expensive form of a bankruptcy proceeding and should therefore be considered after other options have been explored.

Ch. 13 Bankruptcy

Chapter 13 bankruptcy, known as a “Debtor in Possession”Bankruptcy, stands in contrast with Chapter 7 because it allows the individuals to keep from liquidating their property.

Chapter 13 creates a new, more affordable payment plan for the debtor to repay creditors, usually lasting 3 to 5 years.

Once the payment plan is finished, the remaining unsecured debts are discharged.

Bankruptcy FAQs: