Chapter 13 Bankruptcy (also known as “Wage Earners Reorganization”)
If an Individual or Married Couple does NOT qualify for a Chapter 7 bankruptcy either because of too much income or too many assets, then a Chapter 13 Bankruptcy might provide debt relief. To qualify for a Chapter 13 you must have a regular income have your unsecured debts be less than $360,475 and secured debts less than $1,081,400. These amounts are adjusted periodically.
Thus, instead of a complete discharge the Debtor in a Chapter 13 has to commit to making payments for either 3 or 5 years. The payments are usually based on disposable income.
Individuals may use a Chapter 13 proceeding to save their home from foreclosure. The automatic stay stops the foreclosure proceeding as soon as the individual files the Chapter 13 petition. The individual may then bring the past-due payments current over a reasonable period of time. Nevertheless, the debtor may still lose the home if the mortgage company completes the foreclosure sale under state law before the debtor files the petition.
In certain cases a Chapter 13 bankruptcy can offer a certain benefit that a Chapter 7 cannot offer, which is possibly removing a secured lien which was encumbered by a second or third mortgage holder.
A Chapter 13 is a more complex process and thus it is recommended to retain an attorney or at least consult with an attorney to understand the pros and cons of a Chapter 13 bankruptcy filing.