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If you want to know what Chapter 13 bankruptcy is and how it can help you with your financial difficulties and problems, then this page is for you.

Title 11 of the US Code is labeled Bankruptcy and Chapter 13 of Title 11 is labeled “Adjustment Of Debts Of An Individual With Regular Income”. So, when someone files bankruptcy under the laws, rules, and regulations of Chapter 13 we call it a Chapter 13 bankruptcy.

Chapter 13 is labeled “Adjustment Of Debts Of An Individual With Regular Income” because it is the type of bankruptcy where your debts are adjusted by paying your creditors some amount each month. You pay your unsecured creditors (such as credit card companies, medical providers, and personal loan lenders) a part of or all of the money that you owe them. You also pay your secured creditors (such as mortgage lenders and car loan lenders) their regular monthly payments. If you are behind on your monthly payments to a secured creditor, you can pay a little bit of the catch up amount each month until you are caught up. When your bankruptcy is over, you do not have to pay your unsecured creditors any more money. You will still have to pay most secured creditors in order to keep the property that secures the payment of your debt, but you will be current with them.

The way a bankruptcy Chapter 13 works is that when you file bankruptcy, you propose a repayment plan wherein you make a proposal as to how much you will pay each month and how much each creditor will be paid. You meet with the Chapter 13 bankruptcy trustee and creditors and they may ask questions. The trustee must agree to your proposed Chapter 13 repayment plan, and normally, the trustee will adjust the payment plan before he agrees to it. You then must have the bankruptcy court approve your payment plan. After the court approves your plan, you pay the bankruptcy trustee each month and the trustee pays your creditors.

A Chapter 13 bankruptcy is somewhat flexible on how it deals with debt. To give you an idea of how bankruptcy Chapter 13 can help you, let’s look at two different examples.

Example 1

You have a lot of unsecured debt such as credit card bills, medical bills, and/or unsecured personal loans, but you do not have enough income each month to pay these bills. You have enough money each month to pay each creditor half of what their bill is.

With a Chapter 13 repayment plan, you can propose to pay each of these creditors 50% of what their monthly bill is. If you plan is approved by the bankruptcy court, then you pay the trustee who then pays the creditors.

Example 2

You can pay your monthly house payment, but you are several months behind and your mortgage lender is demanding that you pay the arrearage in one lump sum.

With a bankruptcy Chapter 13, you can propose that you will pay the a small amount on the arrearage over time until the arrearage is paid in full. You will have to make your regular monthly payments as you catch up on the arrearage. If your plan is approved by the bankruptcy court, then you pay the trustee who then pays arrearage money to your home lender.

Most people who are considering bankruptcy do not have a simple situation 1 or 2, but have a combination of unsecured and secured debt that is impossible to handle each month. Chapter 13 bankruptcy is flexible and can help most people in most situations. The best idea is to talk with a bankruptcy lawyer licensed in your state because bankruptcy lawyers are trained to develop the best plan for you.

Another way Chapter 13 bankruptcy can help you is that, when you file bankruptcy, there is a legal automatic stay that stops most civil efforts to collect money from you. This means that most bill collectors must stop all collection actions including calling or writing you trying to collect. If you are being sued, most law suits are put on hold. Your creditors may ask the bankruptcy court to lift the stay, and the court may or may not lift the stay, but most of your creditors cannot proceed with collection until the stay is lifted. Some civil cases such as family support actions and certain other civil cases and criminal actions against you are not affected by the automatic stay.

This is general information only. If you have any questions whatsoever, talk with a lawyer licensed in your state who has experience with Chapter 7 bankruptcy, Chapter 13 bankruptcy, or bankruptcy in general.

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