Chapter 13 Reorganization Explained

Bankruptcy law allows consumers and small business owners to file for bankruptcy protection under different chapters such as Chapter 7, Chapter 11, Chapter 12, and Chapter 13. The most common chapter is Chapter 7. In Chapter 7 bankruptcy, you fully disclose your property, debts, and financial activities over the past several years. In a Chapter 7 bankruptcy, most of your assets will be liquidated and you will receive a discharge of most of your debts.



Chapter 12 and Chapter 13 are reorganization programs.While any person can file for bankruptcy protection under Chapter 13, only a family farmer can file for bankruptcy protection under Chapter 12. For the purpose of Chapter 13, bankruptcy law considers sole proprietors and independent contractors as individuals but business entities like corporations or limited liability companies (LLCs) cannot file under Chapter 13. The forms that you have to file in a Chapter 13 bankruptcy are the same as in Chapter7. Once you file your forms, you must prepare and submit a payment plan to the bankruptcy court. In the plan you must explain how you intend to pay off some of your debts in full and a percentage of your unsecured debts. The debtor is a Chapter 13 proceeding has certain remedies which is not available to a Chapter 7 debtor including the chance to pay off the missed mortgage payments during the term of the plan but generally Chapter 13 is not as popular as Chapter 7 because it involves additional legal fess and the debtor must wait for the plan to be over to receive a discharge – three or five years. However, 10% to 15% of the people who file under Chapter 7 are required by the bankruptcy court to convert to Chapter 13, because they have sufficient income to fund a Chapter 13 plan.



Under bankruptcy law before filing a Chapter 13 petition, you must complete a credit counseling course. After completing the course, you must complete the forms (these forms are similar to Chapter 7 forms) and submit it to the bankruptcy court together with:



• a viable repayment plan to pay off some or all debts over the plan period



• proof that you’ve filed your federal and state income tax returns for the previous four years, and



Under a Chapter 13 payment plan, the debtor must make the payments under the plan, generally monthly payments, to the bankruptcy trustee who oversees you case. The trustee uses that money to pay the creditors covered by your plan and to pay his or her own statutory fee. Under bankruptcy law if you are filing a Chapter 13 bankruptcy, you are required to devote all of your "projected disposable income" to your plan. Your repayment period will be three years if your gross average income over the six months before you file is below your state’s median income, and five years if it is above. An experienced bankruptcy lawyer can assist you file for bankruptcy protection under Chapter 13