Chapter 13 bankruptcy is referred to as the Wage Earner's Reorganization. It allows the wage earner to use his income to repay his creditors over a specified time period. To accomplish this, the court creates a payment schedule, whereby the wage earner makes scheduled payments to the creditors over a three to five year payment period.

Some courts might not permit a filing of chapter thirteen. Filings depend on whether or not an individual's income is adequate to repay part or all of the debt. Courts must establish certify that the income is stable and not too low. Thus, chapter 13 is not suited for everyone.

Other Limitations & Requirements

There are limits to the total debt a person carries to qualify for filing a chapter thirteen. Total secured debt can't rise above $922,975. Total unsecured debt can't rise above $307,675. Secured debt is backed up by collateral like a home or a car. Unsecured debt consists of signature loans, medical bills, balances on credit cards etc.

Before proceeding with a chapter 13 filing, all inquirers are required to take a class on personal financial management. This credit counseling course has to be sanctioned by the court trustee. And there is a fee associated with this course. (This fee might be waved in some cases.)

The court determines how much of your debt you must repay. You, then, start making those payments within 30 days after filing. These payments are ordinarily made to the bankruptcy trustee. And the trustee forwards your payments on to your creditors. The court might require these monthly payments be automatically deducted from your pay check and mailed to the trustee. 3%-10% of each monthly payment is paid to the trustee as their commission. It is necessary that these monthly payments be paid on time.

Under chapter thirteen, there are some debts that should be paid in full. This include child support, some tax obligations and alimony. These debts are non-dischargeable and must be paid one-hundred percent.

Bankruptcy law is a federal law; but, there are state laws connected to bankruptcy, so some rules governing bankruptcy depend on the state of residence and filing.

The idea of chapter 13 is to give a person an opportunity for a clean financial start. It protects them from creditors by placing a hold on their assets and debt collections, and provides the court time to work out a legal judgment that is acceptable to all parties.

However, there are consequences of bankruptcy in the form of poor credit and higher interest rates, because bankruptcy shows up on the credit report. Thus, bankruptcy filing should be thought out seriously, and advice should be sought through an attorney.

There are alternatives to chapter 13 bankruptcy. It's important to consider all your options before making a final decision on whether to file for bankruptcy.

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Bankruptcy laws in the United States are made to ensure the interests of the borrower are safeguarded, and are formed by the federal government and addressed accordingly by various US Bankruptcy Courts, and it is believed that each year as many as one million Americans go bankrupt and are found filing for bankruptcy. Most of these individuals that file for bankruptcy do so under different personal bankruptcy laws that include chapter thirteen and also chapter 7, and in a few instances, they can even qualify for chapter twelve, especially if they are anglers or farmers and business is owned by the family.

Filing Under Chapter Seven

You can file personal bankruptcy and at the same time do so under chapter seven in which case it is necessary for you to provide a list of all your assets to the court and also have to assign a trustee who will liquidate items in order to pay off creditors. Furthermore, filing personal bankruptcy is allowed once in seven years and the cost of filing personal bankruptcy is approximately three hundred dollars which goes towards filing fee.

If you plan on filing personal bankruptcy under chapter thirteen, it will help in reducing your debt though unlike chapter seven, does not cancel out your debt. And, chapter thirteen personal bankruptcies also means having to set out a plan for repayment with creditors and courts and assigning trustee who will make monthly payments after paying them the money. The trustee will receive payments from you and apportion them to various creditors, and an advantage to using chapter thirteen for filing personal bankruptcy is that unlike in chapter seven, under this chapter you may hold on to everything that would have been lost under chapter seven.

However, both these types of personal bankruptcy allows the debtor to rid him or herself of debts, though remember when filing chapter thirteen bankruptcy, you need to have debt that is not more than two hundred fifty thousand dollars and that such debt is unsecured, while debts that are secured should not exceed seven hundred and fifty thousand dollars.

The bottom line is that before filing for personal bankruptcy, makes sure to know what the ramifications of different chapters are and in most instances it may be better to file for chapter thirteen instead of chapter seven as the latter shows that you are a person that does not pay your debts.