Chapter 13 Bankruptcy

According to the U.S. Bankruptcy Court, a chapter 13 bankruptcy is also known as a wage earners plan. It enables individuals to re-organize with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” If the debtor’s current monthly income is greater than the applicable state median, the plan generally must be for five years.

Chapter 13 bankruptcy also enables consumers to reschedule secured debts and them over the life of the chapter 13 plan, which helps lower payments for better affordability because it stretches out the term for repayment. Chapter 13 also has a special provision that protects third parties who are liable with the debtor on “consumer debts.”

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