Chapter 13 is a bankruptcy program that provides for repayment of some portion of a person's debts based on income and ability to pay from that income. Chapter 13 Bankruptcy is designed for individuals with regular income who would like to pay all or part of their debts in installments over a period of time. Debtors are eligible for chapter 13 as long as their debts are not too large. If debts exceed the amount allowed by the bankruptcy code then the debtor must proceed under the much more complicated and expensive process in Chapter 11.
Debtors who apply for Chapter 13 bankruptcy generally want to keep the belongings that would otherwise be sold in a Chapter 7 liquidating Bankruptcy. The Chapter 13 Bankruptcy plan must provide at the minimum that the creditors will receive the same value that they would have received in a Chapter 7. Chapter 13 plans allow for the stripping of some liens from property used as collateral ensuring that the debtor will pay only the fair market value an asset has at the time the Chapter 13 Bankruptcy petition is filed; this in keeping with the concept that the creditors receive what they would in a Chapter 7 Bankruptcy.
In a chapter 13 bankruptcy the debtor prepares a repayment plan using future earnings. The payment period in Chapter 13 bankruptcy is a minimum of three (3) years and a maximum of five (5). The time frame that applies in a chapter 13 bankruptcy plan depends on income level and other factors. The Chapter 13 bankruptcy repayment plan must be approved by the court at a special hearing before the plan takes effect. If the Court approves the bankruptcy plan the creditors have no choice but to accept it
After a debtor completes its payments under a Chapter 13 plan any remaining debts are generally discharged. Exceptions include domestic support obligations arising out of a divorce, most student loans, certain taxes, most criminal fines, and restitution obligations, certain debts which are not properly listed in the schedules and certain debts for acts that caused death or personal injury and certain long term debts secured by collateral.
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