Do You Understand Chapter 13?

Many Americas were completely unprepared for the huge-scale downturn and financial crisis that is currently happening all over the world. Because so many Americans were unprepared and easy credit dried up, their expenses and liabilities quickly outstripped their ability to pay for their lifestyles. The financial crisis causes a tightening of credit all over, in turn leading to astounding increases in bankruptcy filings in the United States.

A Chapter 7 bankruptcy is what most people imagine when they consider filing for bankruptcy. Although a few items are exempt, most of the petitioners assets will be sold. Debts that are unsecured, like medical bills and credit cards, will be discharged, and other debts will be rescheduled for payment. However, the United States Trustee over Chapter 7 bankruptcies requires that a means test be applied. This would deny Chapter 7 relief to anyone making enough money that their claim might be abusive.

The alternative to Chapter 7 bankruptcy is a Chapter 13, which is known as a reorganization bankruptcy. It is called reorganization because it restructures the petitioners finances to arrange for eventual payment. It is a good option for people who have assets that would be liquidated under a Chapter 7 and want to keep them; it is also for people who have sufficient income to repay their debts with restructuring. Special protection is given to third parties such as a spouse or co-signer under Chapter 13 bankruptcies. Reorganization under a Chapter 13 plan take three to five years to be complete, whereas Chapter 7 discharges debts within just a few months.