Working Hard but Can't Get Ahead: Chapter 13 May Be the Answer
Chapter 13 of the federal Bankruptcy Code provides for the so-called wage-earner's plan or reorganization that allows an individual (or married couple) who has regular earnings to develop a court-approved plan for partial or full repayment of consumer debts over a three-to-five-year time period, depending on the debtor's income level.

November 18, 2011 /24-7PressRelease/ -- Working Hard but Can't Get Ahead: Chapter 13 May Be the Answer

Bankruptcy is not just for those who have lost their jobs. Chapter 13 of the federal Bankruptcy Code provides for the so-called wage-earner's plan or reorganization that allows an individual (or married couple) who has regular earnings to develop a court-approved plan for partial or full repayment of consumer debts over a three-to-five-year time period, depending on the debtor's income level.

A working debtor is only eligible for Chapter 13 protection if his or her total unsecured and secured debt levels each do not exceed certain upper limits. The limits are relatively high and most middle-class debtors will be eligible.

Among other requirements, a Chapter 13 debtor must get approved credit counseling before filing.

A wage-earner's plan allows a debtor to make good on all or at least part of his or her debt load. Past-due amounts might be spread out over the plan period and repaid, instead of being discharged outright. Chapter 13 encourages those in overwhelming debt to pay creditors as much as possible rather than walk away without trying.

The Chapter 13 plan is proposed by the debtor and must be confirmed (approved) by the U.S. Bankruptcy Court. Plan payments are administered by a bankruptcy trustee, who receives the debtor's money and distributes payments to the creditors as dictated by the plan. In addition, the trustee acts as a buffer between the debtor and his or her creditors during the plan period.

During the plan, most creditors may not take legal action against the debtor to collect; such legal action is stayed. In fact, creditors must even cease from informal attempts like phone calls.

If the plan is successfully completed, most debts handled through the plan by partial or full payment are legally discharged. However, certain types of debt are not dischargeable in Chapter 13 like domestic support orders, criminal fines and drunk-driving damages.

Advantages of Chapter 13

In these difficult economic times, a crucial advantage of Chapter 13 is that an individual may be able to avoid losing his or her house in foreclosure. Foreclosure actions are stayed and late payments may be allowed to be made up.

Chapter 13 may allow a debtor to keep more of his or her property than would be allowed under the main alternative bankruptcy plan: the Chapter 7 liquidation. In addition, certain types of debts not dischargeable under Chapter 7 may be discharged in Chapter 13.

Chapter 13 also may offer more protection than Chapter 7 to co-debtors or co-signors of a debtor's obligations.

Chapter 13 is complex and this article only skims over the surface. Anyone contemplating bankruptcy should contact an experienced and knowledgeable bankruptcy attorney for specific advice about his or her situation.

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