What is Chapter 13 bankruptcy, and who is eligible?

Although many individual debtors choose to file bankruptcy under Chapter 7 in Minnesota, Chapter 13 bankruptcy is available to some people who are over the income limits for Chapter 7 or who wish to keep certain types of secured property. Chapter 13 is also known as individual debt reorganization and has some advantages for those who are eligible to file under its rules.

In a Chapter 13 bankruptcy, the individual debtor proposes a repayment plan that will last for a period of three to five years. If the plan is approved, the debtor must submit a single payment to the trustee each month who disburses it to the individual's creditors. People who are facing foreclosure of their homes can often save their home in this way. They will have reduced payments during the repayment term but will need to catch up on payments that are in arrears.

Not everyone is eligible to file under Chapter 13, however. In order to be eligible, their unsecured debts must be less than $383,175 and their secured debts cannot total more than $1,149,525. A person also will be ineligible if within 180 days, a prior bankruptcy petition was dismissed because of the debtor's failing to appear in court, if the debtor failed to comply with the court's orders or was voluntarily dismissed.

There are advantages to filing under Chapter 13, especially for people who wish to save certain property that they might otherwise lose. If a proposed repayment plan is approved, the debtor must make certain to comply with all terms and conditions during the repayment period. A Chapter 13 bankruptcy can provide financial relief, and at the end of the repayment period, the debtor's remaining balances will be discharged if all orders were followed.

Source: United States Courts, "Individual Debt Adjustment", November 02, 2014

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