Chapter 13 bankruptcy is a method employed by consumers who have debts and are not in a position to pay them back. It is a way for them to restore their financial status and get back to a zero balance.
Bankruptcy is a legal process whereby a creditor files for it in a court of law, expressing his inability to pay his debts. Chapter 13 bankruptcy is usually called the reorganization bankruptcy. It is a debt that is filed by consumers who wish to pay their debts within a period of three to five years. It is a strategy that helps individuals to keep some of their possessions such as their homes and at the same time have a means of financially meeting their usual living expenses.
A consumer presents a bankruptcy petition before a court, listing his schedule of assets and liabilities. After this, the person filing for bankruptcy presents a repayment plan, which is meticulously reviewed by the creditors to check whether it meets their needs. After taking stock of objections and making amendments, both the parties follow this reorganization plan.
However, there are other additional confirmation tests that remain before the reorganization of bankruptcy. A part of this is a test to compare amounts that the creditors would receive if they were to follow Chapter 7 bankruptcy. This test is meant to confirm that creditors should receive the same amount from both Chapter 7 and Chapter 13 bankruptcy. Another test requires the applicant to pay all their disposable income to the repayment plan as well.
Chapter 13 helps those people who are interested in keeping an important possession, such as one?s home. An example is a person who has missed many house payments and is scared of receiving a foreclosure. This individual can halt the same by filing for Chapter 13 bankruptcy. This is usually referred to as ?automatic stay? and allows time for a consumer to catch up on missed payments.
Chapter 13 bankruptcy is thus quite helpful. However, one important aspect one needs to keep in mind before filing is that a consumer?s credit record suffers a 10-year black listing where it becomes extremely difficult to secure a loan when one is needed.