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Chapter 13 Bankruptcy

According to the U.S. Bankruptcy Court, a chapter 13 bankruptcy is also known as a wage earner's 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.

One of the most notable features of a chapter 13 is that it offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. However, you must make all the mortgage payments that come due during the chapter 13 plan on time or the lender can still foreclose.

Chap 13 BK also allows individuals 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." So, co-signers may be protected under chapter 13.

Under chapter 13, the debtor makes the plan payments to a chapter 13 trustee who distributes the payments to the creditors, which is why many people also consider chapter 13 a debt consolidation plan. Filers have no direct contact with the creditors while under chapter 13 protection. This ends all the harassing creditor phone calls and letters. Like chapter 7, chapter 13 provides impairs credit for 7 to 10 years. It also generates a public record against you, so you should consider any chapter of bankruptcy a last resort for resolving your financial situation.

Chapter 13 "super discharge" is repealed under the new bankruptcy laws.
The "super discharge" from the old laws has been repealed. Previously, debtors were granted a complete discharge of all claims once a repayment plan had been completed because several courts interpreted this discharge to include any tax indebtedness due to failure to pay, as well as penalties for evasion and nonpayment. Chapter 7 specifically denies a debtor relief from tax-related claims and indebtedness, so this "super discharge" was repealed to prevent people from choosing chapter 13 to get out of tax indebtedness.

Chapter 13 Eligibility
According to the U.S. Bankruptcy court, any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 debt relief as long as the individual's unsecured debts are less than $307,675 and secured debts are less than $922,975.

An individual cannot file under chapter 13 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. Additionally, no individual may be a debtor under chapter 13 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. Similar to chapter 7, an individual undergoing chapter 13 bankruptcy must also undergo the second counseling session to learn how to manage their personal finances. This takes place towards the end of the bankruptcy case.

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