Chapter 13 bankruptcy is also called the Wage Earner's Reorganization. It allows the wage earner to use his income to pay back his creditors over a definite period of time. To accomplish this, the court creates a payment schedule, and the wage earner makes scheduled payments to his creditors over a three to five year payment period.

Some courts might not agree to a filing of chapter thirteen. Filings depend on whether or not a person's income is adequate to repay some or all of the debt. Courts must confirm that the income is stable and not too low. Thus, chapter 13 is not suited for everyone.

Other Limitations & Requirements

There are limits to the extent of debt a person owes to qualify for filing a chapter thirteen. Total secured debt cannot top $922,975. Total unsecured debt cannot top $307,675. Secured debt is backed up by collateral such as a home or a car. Unsecured debt embraces medical bills, signature loans, balances on credit cards et cetera.

Before proceeding with a chapter 13 filing, all applicants are instructed to take a course in personal financial management. This credit counseling course has to be approved by the court trustee. And there is a fee associated with this course. (This fee can be waved in some instances.)

The court determines how much of your debt you must repay. You, then, set about making those payments within 30 days after filing. These payments are usually sent to the bankruptcy trustee. And the trustee sends your payments on to your creditors. The court might require these monthly payments be automatically deducted from your pay check and sent to the trustee. 3%-10% of each monthly payment is given to the trustee as their commission. It is imperative that these monthly payments be paid on time.

Under chapter thirteen, there are some debts that should be paid in full. These include child support, some tax obligations and alimony. These debts are non-dischargeable and must be paid 100%.

Bankruptcy law is a federal law; nevertheless, there are state laws connected to bankruptcy, so specific rules governing bankruptcy may depend on the state of residence and filing.

The intention of chapter 13 is to give a person an opportunity for a fresh financial start. It shelters them from creditors by placing a hold on their assets and debt collections, and provides the court time to arrange a legal judgment that is accepted by all parties.

However, there are consequences of bankruptcy in the form of poor credit and higher interest rates, because bankruptcy shows up on the credit report. Thus, bankruptcy filing should be considered seriously, and advice should be sought through an attorney.

There are alternatives to chapter 13 bankruptcy. It's important to consider all your options before making a final decision on whether to file for bankruptcy.