Individuals with Regular Source of Income can Avail Bankruptcy Protection under Chapter 13

Consumers and small business owners can file for bankruptcy protections under the different chapters of bankruptcy law such as Chapter 7, Chapter 11, Chapter 12, and Chapter 13. The most common chapter is Chapter 7. If you are filing for protection under Chapter 7, you must make a complete disclosure of 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 designed for individuals, except that Chapter 12 is especially designed for owners of family farms, while Chapter 13 is designed for everybody else. Under existing bankruptcy law, sole proprietors and independent contractors can file for protection under Chapter 13. However business entities like corporations and limited liability corporations cannot file for protection under Chapter 13. The forms that you have to file in a Chapter 7 and a Chapter 13 bankruptcy are similar. However in addition to the forms, you must also submit a three or five year payment plan detailing how you intend to pay off certain debts in full and a portion of your unsecured debts. Chapter 13 provides some remedies that aren’t available in Chapter 7— such as the opportunity to pay off missed mortgage payments over the life of the plan—but usually isn’t the bankruptcy of choice because of the extra legal fees it entails, and because people would rather get their fresh start in three months instead of 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



• evidence that you have filed your federal and state income tax returns for the last 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 will pay off the creditors according to the plan and also use the money to pay the trustee fees. Under the bankruptcy law, a Chapter 13 debtor must devoted all his or her "project disposable income" to the payment 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. Hire the services of a bankruptcy law firm if you want to file for bankruptcy under Chapter 13