United States law provides for several different types of bankruptcy meant to protect citizens from insolvency. Chapter 13, one of the most common types of bankruptcy, allows for debtors to restructure their debt over a set period of time in order work their way back into the black without predatory creditors being able to demand their money back immediately. If you were to file for Chapter 13 bankruptcy, you would benefit from a court-approved plan to work your way back out of debt.
Chapter 13
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Unlike Chapter 7 and Chapter 11 bankruptcy proceedings, you cannot be forced into Chapter 13 bankruptcy. However, you can choose to file for Chapter 13 if creditors are trying to force you to file for Chapters 7 or 11. Unfortunately, you would be unable to file for Chapter 13 if you did not have the income to support a realistic plan to pay off your debt. Furthermore, US law dictates that Chapter 13 can only be filed for if you have less than $336,900 in unsecured debt and less than $1,010,650 in secured debt as of April, 2007.
When you file for Chapter 13 bankruptcy, you put forward a plan to pay back your creditors over a period of three to five years, with every repayment and date noted. The payments must be started within 30 to 45 days after the proposal. During the three-to-five-year period, creditors are not able to collect on your debts outside of bankruptcy court, and expect to be paid back less than the value of your total debts.
As with all types of bankruptcy, the downsides of Chapter 13 include the black mark it makes on your credit record which may make it difficult to take out loans in the future. While under the provisions of Chapter 13, you cannot obtain loans without the approval of the court.
However, unlike in Chapter 7 bankruptcy, you are able to stop foreclosures, and you usually are able to keep your possessions, which in Chapter 7 can be seized by your creditors in lieu of payment. Chapter 13 can be the better choice when it comes to declaring bankruptcy, due to the comparative freedom it affords the debtor. Unlike other chapters of bankruptcy law, Chapter 13 allows you to control your own fate, so to speak, in that you set forward the plan and are allowed to keep your home and possessions.
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