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Chapter 13. Individual Debt Adjustment

Chapter 13 of the US Bankruptcy Code is often termed as a “wage earner” chapter, although it can be of assistance to those with regular revenue from any resource, not only wages.  Chapter 13 is designed for individual debtors with regular income who would like to pay off the debts within reasonable time.  The intention of Chapter 13 is always to make it possible for financially troubled individual debtors, under the direction of a courtsupervision along with protection, to recommend and complete a repayment plan under which creditors are paid over a prolonged time period.

Under Chapter 13, debtors usually are permitted to repay creditors, in full as well as in part, in payments spanning a three to five year interval, where the creditors are not allowed to start as well as continue collection efforts.  A repayment plan offering payments above three years should have an approval from the court.  Moreover, any self employed individual debtor or an unincorporated business operator is eligible for Chapter 13 relief if his/her debts are within a specified limit as described in the bankruptcy code.  However, a corporation or partnership firms are not eligible to avail Chapter 13 benefits.

Under Chapter 13, the individual debtor can file a repayment plan with the court to get an approval to pay off creditors by using his/her future earnings.  Generally, the court sanctions the repayment plan for a period of three to five years based on debtor’s potential income, volume of secured and unsecured debts, number of creditors and some other core factors.

After performing the payments in accordance with repayment plan, the debts of the debtor are discharged with some exemptions.  Debts such as domestic support obligations; student loans; restitution obligations; certain taxes; certain criminal fines; certain debts arise from some acts result to death or personal injury and certain long term secured debts will persist even after the Chapter 13 discharge.  An individual debtor will be disqualified if his/her bankruptcy petition was previously dismissed within 180 days before filings second petition due to willful failure in appearing the court or in compliance with the court orders or voluntary dismissal due to creditors’ property recovery proceedings.

There should be a sense of balance between a debtor’s monthly income and his/her standard of living expenses while fixing the repayment plan.  The surplus amount over debtor’s expenses is deposited with the trustee to disburse among creditors.  Generally, the repayment plan is fixed for three to five years.  If there is any surplus in secured debts that amount is transferred to unsecured debts to disburse in accordance with debtor’s repaying capacity and the state regulations.  Chapter 13 permits to eliminate all interest on most unsecured debts and also certain kinds of secured debts.  Such relaxation in interest rate and debt balance and extension in payment time period helps the debtor to fulfill the repayment plan.

Inside Chapter 13. Individual Debt Adjustment