What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is also called a wage earner’s plan. It enables people with regular income to develop a plan to repay all or part of their debts. Debtors propose a repayment plan to make installment payments to creditors over three to five years, based on their average income over the six months prior to filing. It is essentially a bankruptcy for those whose biggest problem is dealing with creditors’ demands for immediate payment, not lack of income.
If the debtor’s current monthly income is less than the applicable state median, the plan can last for three years. If the debtor’s current monthly income is greater than the state median, the plan generally must be for five years. During this time, creditors are to stop all collection efforts. The median income amounts in Georgia are as follows:

Household size:

  1. $49,236.00
  2. $63,850.00
  3. $72,426.00
  4. $85,763.00
  5. $94,763.00

Chapter 13 has several advantages over liquidation under chapter 7. Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Chapter 13 also offers an individual to stop their car from repossession, and many times can lower the car payment. It can also lower monthly payments and interest rates on other secured loans, such as appliances or furniture loans.

Finally, Chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a Chapter 13 trustee who then, distributes payments to creditors. A debtor will pay back a percentage of their unsecured creditors based on several factors, including the debtor’s income, family size and amount of debt. In many cases, the debtor is not required to pay anything back to the unsecured creditors.

There are also several disadvantages to filing Chapter 13. As noted earlier, a Chapter 13 can take up to five years to complete. Chapter 7 usually takes four to six months. It is also difficult (though not impossible) to get credit under Chapter 13. Though it is possible to file bankruptcy yourself, the first step in the process should be to hire a bankruptcy lawyer. There are so many laws and exceptions involved that it makes sense to have a professional helping you with this very important step in life. Call an attorney at Kelley, Lovett, Blakey & Sanders today for a free consultation, as every situation is different.

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