Chapter 13 Bankruptcy Defined

Posted On: September 2011

Editor: Tiffany Brewington

Chapter 13 is a form of bankruptcy protection whereby a person reorganizes his debt, by paying through a Chapter 13 Trustee all of his disposable income over a three to five year period of time. In many cases, creditors will receive less than a 100% repayment on their debt. To qualify for Chapter 13 bankruptcy, you first must be an individual. Further, you must have monthly income which exceeds your monthly expenses in order to fund a plan.

The most common use of a Chapter 13 bankruptcy case is to repay mortgage arrears over time. Chapter 13 will stop a foreclosure case and although a debtor to reorganize the arrearage, provided the foreclosure case has not yet proceeded to a Sheriff’s sale. If this were to occur, Chapter 13 will not provide a remedy to undue that sale. However, there is often a long time frame from the commencement of a foreclosure case until the time it is actually sold at auction.

Another common use of Chapter 13 bankruptcy is to reorganize other secured debts such as vehicles. A financed vehicle can be reorganized through a Chapter 13 bankruptcy filing which could likely lower the monthly payment being paid by the debtor. In some cases, the vehicle finance company will receive less than what is owed on the contract. In any event, the debtor can continue to own and operate the vehicle provided that timely payments are made to the Chapter 13 trustee.

Lastly, all other debt can be reorganized through the use of a Chapter 13 bankruptcy case. It will stop collection efforts, lawsuits, garnishments and foreclosures. It basically provides a means for a debtor to repay all or a portion of his debts over a three to five year period of time.

For all your Bankruptcy-related questions, contact Illinois Bankruptcy Attorney David M. Siegel here or call (847) 520-8100.

Posted On: September 2011

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