Chapter 13 Bankruptcy and How it Works for You


Chapter 13 Bankruptcy is the section of the bankruptcy code that allows you to pay off your debts according to a court-approved repayment plan. One advantage of filing Chapter 13 bankruptcy is that all debt-collection activity against you automatically ceases by law. This includes the action most homeowners are terrified of – foreclosure. In addition, a Chapter 13 bankruptcy also stops interest and penalties from accumulating on your unsecured debts such as credit card balances, medical bills and tax debts.

The most essential part of a Chapter 13 bankruptcy is the debt-repayment plan. The plan takes into account your ability to pay regular monthly installments to clear off your debts before emerging from bankruptcy.

Under Chapter 13, you do not have to fully repay your unsecured debts as long as you pay your unsecured creditors at least as much under the plan as they would receive if your assets were liquidated under Chapter 7 bankruptcy. However, secured debts like a mortgage or car loan must be repaid in full.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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