Chapter 13 is a court ordered payment plan that enables debtors to pay off debt over a period of 36-60 months, through a monthly payment made to the bankruptcy trustee. Not all debt must be paid off in full, but some debt is “secured” and must be paid off in full to keep the asset. Secured debt is debt that’s “attached” to something, such as a home or car. If the payments aren’t made on a secure debt, the asset will be repossessed. Other debt, called “unsecured” debt, can be paid over the 60 month plan, without paying it in full. The third category of debt, which is called “priority” debt, must be paid in full even if there is no asset which is secured. Examples of this kind of debt are recent taxes, student loan debt, criminal restitution, and other categories. In a Chapter 13, interest and late fees are suspended. The amount of the monthly payment to the Ch 13 trustee is determined by a “means test” which takes into consideration total debt, total income, and household living expenses.
Many consumers who wish to protect their homes in foreclosure use Chapter 13. In addition, many small businessmen, if their asset bases are not too large, can use Chapter 13 as a “safety net”, of sorts, to allow for reorganization.
Chapter 13 is viewed by the experts as a “small” business reorganization. This is in contrast to the “big” business reorganization, known as Chapter 11.
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Note: We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.