Chapter 13 involves a restructuring of an eligible individual’s debts, with the goal of bringing the payments down to a manageable amount that the debtor can afford to pay. The Chapter 13 plan allows debtors to repay most or even all of their existing debts over a period of three to five years. This type of adjustment may be preferable to a full liquidation because it allows people to save some of their property, including homes and cars. Co-signers are protected because the secured assets are maintained and paid for rather than being surrendered to the lien holders.

There are financial eligibility requirements. The total amount of unsecured debts must be below $383,175, and the secured debts cannot total more than $1,149,525. Filers must take a credit counseling course during the 180 days before filling. However, there are exceptions made in some emergency situations or in cases where there are not sufficient approved agencies to provide the necessary counseling.

The process for filing can be extensive, and it legally starts when a petition is filed with the courts. The debtor must also provide information regarding assets, liabilities, monthly expenditures, current income, unexpired leases or financial contracts, a statement of financial affairs, and tax returns. Married individuals must submit information for both spouses regardless of whether they are filing a joint petition.

A Chapter 13 debt restructuring can be used to stop a foreclosure and in some cases help people remain in their home. However, all paperwork must be properly filled out and filed with the courts to avoid more serious collection actions, wage garnishments, and other negative consequences. A bankruptcy attorney can provide clients with additional information regarding requirements, advantages and possible alternatives.

Source: United States Courts, “Individual Debt Adjustment“, October 07, 2014