Chapter 13 Bankruptcy – The Basics

Chapter 13 bankruptcy is also known as “wage earner plan”. It is different from chapter 7 in a sense that it allows the debtor to continue with its existing venture. The bankruptcy court provides an opportunity to the debtor to reorganize their finances while paying off the reduced claims of the creditors simultaneously.

The Objective Of Chapter 13 Bankruptcy

The primary objective of the chapter 13 bankruptcy is to protect both the debtor and its creditors. By suggesting the repayment plan, the bankruptcy court protects the creditors and they can expect to get their money back. On the other hand, by allowing the debtor to continue with their business, the court gives them an opportunity to reorganize their finances.

How To Qualify For Chapter 13 Bankruptcy

Following are some of the qualifying criteria for chapter 13 bankruptcy.

•The first and most important thing is the amount of regular income that is guaranteed with the debtor. The income must surpass the reasonable living expenses for the debtor and his or her dependants. This is just to make sure that the debtor will have enough money to pay off the debts that they owe to various creditors on a fixed monthly schedule basis. The good news is that in some cases, the debtor may offer to pay off only a certain percentage of the total amount of debt and the bankruptcy court may approve the same. For example, the debtor may offer to pay 25 cents on every dollar. In most cases, the creditors’ claims are usually reduced.
•Before you file for chapter 13 bankruptcy, you are also supposed to have a meeting with a credit counselor at least 6 months before applying for bankruptcy. The meeting will be a proof that you tried your best to get things back to normal and regain control of your finances, but failed.
•It is better if you have also attended certain money management classes on your expense before filing for chapter 13 bankruptcy.

Overall, we can say that chapter 13 bankruptcy is for those who have a regular source of income and who are not willing to stop their business venture. People with no guaranteed source of income cannot apply for chapter 13 bankruptcy. However, the bankruptcy attorney will give you better suggestions in this regard after studying all the minor and major details regarding your specific case. Therefore, do consult with your bankruptcy lawyer before you go ahead and file for a specific type of bankruptcy.