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Chapter 13 Bankruptcy - See Alternatives

According to the current statistical records, Chapter 13 bankruptcy is filed by 25% of the total debtors filing for bankruptcy. This article provides a perspective view of this particular chapter of the Bankruptcy Code.

Definition: According to the Bankruptcy Code, Chapter 13 Bankruptcy is meant for individuals wanting to pay off their debts within a period of three to five years. Better known as reorganization bankruptcy, Chapter 13 helps individuals or small scale business owners to retain non-exempt properties and pay back the Creditors under a repayment plan. This type of Bankruptcy provides with an alternative to the liquidation process of Chapter 7 Bankruptcy.

Subchapters: Chapter 13 bankruptcy is subdivided into 2 sub chapters:

Subchapter 1: Highlights primarily on the formation of trustees and duties of trustees, rights and powers of debtors, filing and allowance of post petition claims, description of property of the estate and instances where a debtor can convert a case under this chapter into a case under Chapter7.
Subchapter 2: Primarily highlights on the filing of plan along with prescribed contents by the debtor, modification of plan before confirmation, confirmation of plan by the court, commencement of rescheduled payment plan by the debtors (within 30 days after the plan is filed), effect of confirmation plan on creditor, circumstances when the Court shall discharge a debtor from his debt, modification of plan at any time after confirmation but before the completion of payments under such plan, revocation of an order of confirmation on request of a party in interest at any time within 180 days after the date of the entry of an order of confirmation.

Who can qualify for Chapter 13: Chapter 13 can be filed by:

Individuals having regular income.
Individuals not having more than $250,000 in debt and more than $750,000 in secured debt.
The debt amounts must be specific and fixed and not followed by any conditions.

Who can't qualify for Chapter 13: Chapter 13 can't be filed by:

In the name of a business.
In case of sole proprietorship.
By stock brokers and commodity brokers .

Chapter 13 is an ideal option for:

Anyone who is lagging behind on mortgage and need fast action.
Anyone wanting to protect assets from liquidation under a chapter 7.
Anyone who can't qualify for Chapter 7 due to high disposable income.
Farmers not qualifying for chapter 12 with debt not related to farming.

Funds that can be used for repayment under Chapter 13:You can use the following incomes to fund a Chapter 13 plan:

Fixed salary
Income on compensatory grounds
Income from business
Income from part time jobs
Pension payments
Earning due to social security benefits
Child support or Alimony
Earnings from royalties and rents

Advantages of Chapter 13:These are the advantages of Chapter 13:

Allows keeping both exempt and non-exempt properties.
Debts not discharged by Chapter 7 can be reduced.
Chapter 13 ,better know as Wage earner's plan,as it stops wage garnishment.
Any co-signer is immune from the creditor's efforts so long as the Chapter 13 plan provides for full payment.
Foreclosure of agreement for home purchase can be delayed.
Chapter 13 can be filed immediately after Chapter 7 discharge to pay off any remaining liens.
Provides with the provision of modifying interest rates on some loans.
Payment term on most debts can be extended under Chapter 13.
Affordable payments on secured and tax creditors can be achieved under Chapter 13.
Chapter 13 can be filed repeatedly.

Disadvantages of Chapter 13: These are the disadvantages of Chapter 13:

Chapter 13 bankruptcy filing will appear in the Credit reports for 7 years.
Borrowing a large sum of money will be difficult as Creditors may question your credibility.
The repayment period after Chapter 13 filing, hampers the usual living standards of the debtors as they are put to rigid budget.
Not all debts are discharged under Chapter 13 and some debts will survive after your bankruptcy is closed and you must continue paying.
At par with the intricacies of Chapter 13 filing, legal fees are higher.
The amount of debt you can discharge under Chapter 13 is limited.
Stock brokers and commodity brokers are not allowed to file a petition under Chapter 13 bankruptcy.
A bankrupt under Chapter 13 can get credits only at higher interest rates.
Extra costs like trustee's charge, attorney and court fees are involved in Chapter 13 filing procedure.

Success and popularity of Chapter 13 bankruptcy in particular cases prove that Creditors need the money back more than assets from their debtors. However, one should assess the feasibility of repayment plan under debt consolidation programs before filing for Chapter 13. Both Debt consolidation program and chapter 13 bankruptcy provides with repayment plans followed by varied degrees of risk factors. Only you need to make the right choice.