Chapter 13 Bankruptcy

Chapter 13 Bankruptcy Bankruptcy Reform Act 1978 Debt Restructuring Repayment Plan Personal Bankruptcy Creditor Repayment Debt Management Financial Reorganization
Chapter 13 of the Bankruptcy Reform Act of 1978 refers to debt restructuring, allowing individuals to repay creditors over time, typically through a repayment plan.
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Chapter 13 Bankruptcy: Debt Restructuring

Chapter 13 bankruptcy, under the Bankruptcy Reform Act of 1978, allows individuals with a regular income to create a plan to repay all or part of their debts over a period of three to five years. Often referred to as the “wage earner’s plan,” Chapter 13 enables debtors to keep their property while catching up on delinquent mortgages and car loans, among other debts.

Key Components:

  1. Repayment Plan: The debtor proposes a repayment plan to make installments to creditors over three to five years.
  2. Income Requirements: Individuals must show they have regular income to support the repayment plan.
  3. Automatic Stay: Filing for Chapter 13 halts most collection actions against the debtor, allowing breathing room to focus on repayment.
  4. Debt Limits: Applies to individuals with unsecured debts below $419,275 and secured debts below $1,257,850 (as of April 2019).
  5. Eligibility: Available to individuals (including self-employed) or those filing jointly with a spouse.

Examples:

  1. Homeowners Facing Foreclosure: Chapter 13 can stop foreclosure and allow the debtor to catch up on overdue mortgage payments over time.
  2. Business Owners: Self-employed debtors who have a regular income may benefit from Chapter 13 to reorganize their personal finances.
  3. Multiple Debts: Debtors with multiple types of unsecured and secured debts who can manage a steady repayment timeline benefit from the structured repayment framework.

Frequently Asked Questions:

Q1: How long does a Chapter 13 repayment plan last? A1: Typically, a Chapter 13 plan lasts between three to five years, depending on the debtor’s income level relative to the state median income.

Q2: What happens if I fail to make a payment under my Chapter 13 plan? A2: If you fail to make a payment, the trustee may ask the court to dismiss your case, convert it to Chapter 7, or allow modifications to the plan.

Q3: Can Chapter 13 bankruptcy discharge student loans? A3: Generally, student loans are not dischargeable under bankruptcy unless undue hardship can be demonstrated, which is a challenging standard to meet.

Q4: Will filing Chapter 13 stop wage garnishments? A4: Yes, filing for Chapter 13 will trigger an automatic stay that halts wage garnishments and other collection activities.

Q5: Can I use Chapter 13 if I am self-employed? A5: Yes, self-employed individuals with a regular income can file for Chapter 13 bankruptcy.

  1. Chapter 7 Bankruptcy: Known as “liquidation bankruptcy,” it involves selling the debtor’s non-exempt assets to repay creditors and discharges most remaining unsecured debts.
  2. Chapter 11 Bankruptcy: Commonly used by businesses and some individuals, this chapter involves reorganizing debts and assets. It allows the debtor to continue operating while repaying creditors as per a court-approved plan.

Online Resources:

Suggested Books for Further Studies:

  • “Chapter 13 Bankruptcy: Keep Your Property & Repay Debts Over Time” by Stephen Elias, Albin Renauer, and Robin Leonard
  • “The Complete Chapter 13 Personal Bankruptcy Guide” by Brad Price
  • “Personal Bankruptcy Laws For Dummies” by James P. Caher and John M. Caher

Accounting Basics: “Chapter 13 Bankruptcy” Fundamentals Quiz

### Who is typically eligible for Chapter 13 bankruptcy? - [x] Individuals with regular income - [ ] Large corporations - [ ] Sole proprietors only - [ ] Government entities > **Explanation:** Chapter 13 bankruptcy is primarily designed for individuals, including self-employed or those filing jointly with a spouse, who have regular income. ### What is the duration of a typical Chapter 13 repayment plan? - [x] 3 to 5 years - [ ] 1 to 2 years - [ ] 6 to 8 years - [ ] 10 years > **Explanation:** The duration of a Chapter 13 repayment plan is typically between three to five years, depending on the debtor’s income level and specific circumstances. ### Does filing for Chapter 13 provide an automatic stay on collection activities? - [x] Yes - [ ] No - [ ] Only for secured debts - [ ] Only for unsecured debts > **Explanation:** Filing for Chapter 13 triggers an automatic stay, which halts most collection activities, including wage garnishments, foreclosures, and lawsuits. ### Can Chapter 13 bankruptcy discharge student loans? - [ ] Generally, yes - [x] Generally, no - [ ] Always, according to new rules - [ ] Only if the debtor is a student > **Explanation:** Student loans are generally not dischargeable under Chapter 13 bankruptcy unless the debtor can demonstrate undue hardship, which is difficult to achieve. ### What is a key advantage of Chapter 13 over Chapter 7? - [ ] It discharges most assets immediately. - [x] It allows debtors to keep their property while making payments. - [ ] It requires no repayment plan. - [ ] It applies only to businesses. > **Explanation:** A key advantage of Chapter 13 is that it allows debtors to keep their property while catching up on payments through a structured repayment plan, unlike Chapter 7, which may involve asset liquidation. ### Is Chapter 13 available to self-employed individuals? - [x] Yes - [ ] No - [ ] Only if they have no employees - [ ] Only if their debts exceed the limit for Chapter 7 > **Explanation:** Self-employed individuals with regular income are eligible to file for Chapter 13 bankruptcy. ### What happens if a debtor misses a Chapter 13 payment? - [ ] Nothing - [ ] The plan continues as usual. - [x] The case may be dismissed or converted to Chapter 7. - [ ] The debtor has to refile. > **Explanation:** If a debtor misses a payment, the trustee may request the court to dismiss the case, convert it to Chapter 7, or modify the plan. ### Which debts have specific limits for Chapter 13 eligibility? - [x] Both secured and unsecured debts - [ ] Only secured debts - [ ] Only unsecured debts - [ ] There are no limits. > **Explanation:** Chapter 13 has specific debt limits for both secured ($1,257,850) and unsecured ($419,275) debts as of April 2019. ### What is the purpose of an automatic stay in Chapter 13? - [ ] To increase interest rates on debts - [x] To provide relief from collection actions - [ ] To reduce the repayment plan to one year - [ ] To discharge all taxes owed > **Explanation:** The automatic stay in Chapter 13 bankruptcy provides relief from collection actions, giving debtors time to focus on their repayment plan without the threat of ongoing collections. ### Will Chapter 13 bankruptcy affect one's credit score? - [x] Yes - [ ] No - [ ] Only if there is secured debt involved - [ ] Only if the repayment plan fails > **Explanation:** Filing for Chapter 13 bankruptcy will adversely affect one's credit score, though it may be seen as less damaging than Chapter 7 because it involves a repayment plan.

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Tuesday, August 6, 2024
Chapter 13 of the 1978 Bankruptcy Act
Chapter 11 of the 1978 Bankruptcy Act

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