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What is Chapter 13 Bankruptcy?   


Chapter 13 is a section of the United States Bankruptcy Code designed primarily for the hard-working individuals who desire to repay their debt. Chapter 13 clients include individuals, residential homeowners, debtors with certain nondischargeable debts, and individuals with substantial personal assets. A Chapter 13 bankruptcy allows a person or married couple to pay off all, or a portion, of their debts under the supervision and the protection of the U.S. Bankruptcy Court in exchange for a monthly payment.


When someone files a Chapter 13 petition in bankruptcy, generally, their aim is to have the opportunity to repay some or all the debts in their name, in better terms, i.e. lower or no interest or to save their house from foreclosure or if they are unable to file a Chapter 7 due to their income or non-exempt assets.


Chapter 13 is for working people, with steady incomes, who are overwhelmed with debt, including overdue credit obligations, repossessions, judgments, lawsuits, garnishments and other financial concerns. Along with a petition and schedules, clients submit to the bankruptcy court a proposed plan to fully or partially repay their creditors over 3-5 years. 


Oftentimes, a Chapter 13 is utilized to save a client's home or delay a foreclosure sale so the client can sell his or her home on their own. In a home-saver Chapter 13 case, a Chapter 13 Plan is primarily used to repay mortgage arrears, and a percentage, or all, of the money owed to any other creditors, over a 3-5 year period. 


In Chapter 13, some debts may be repaid in an affordable manner. Chapter 13 allows you to modify some loan agreements and even eliminate significant portions of unsecured debt. Chapter 13 allows for the repayment of only what an individual or family can reasonably afford.


If your home is in foreclosure a Chapter 13 will stop the foreclosure immediately. You will be provided the opportunity to get caught up on your mortgage payments over a three to five-year period, with reasonable monthly payments. Chapter 13 protects your car from repossession and may also reduce the amount you owe. Even if your car has already been repossessed, your car lender may be ordered to return the car to you if you act quickly.


Chapter 13 also stops garnishments, tax levies, and lawsuits. Back income taxes can be paid through Chapter 13 without further interest or penalty and in many cases less than the full amount of the taxes must be repaid. Some back property taxes can also be put into your payment plan. 


Under Chapter 13 bankruptcy, debtors file a plan with the bankruptcy court indicating how they plan to pay off their debts over the next three to five years. A bankruptcy lawyer can assist a debtor in determining which debts must be paid in full or in part. 


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