Definition
Chapter 13 Bankruptcy is a specific type of bankruptcy filing under U.S. law that sets up a repayment plan for individuals to pay off their debts while retaining ownership of their assets, including real estate. Unlike Chapter 7 Bankruptcy, which involves liquidating assets to pay creditors, Chapter 13 allows the debtor to keep their property and repay debts over a period of three to five years as determined by the bankruptcy court.
Examples
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Avoiding Foreclosure: A homeowner who has defaulted on mortgage payments files for Chapter 13 Bankruptcy. The court sets up a repayment plan that allows the homeowner to catch up on missed payments while continuing to make regular monthly payments.
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Consolidating Debt: An individual with various debts, including credit cards, medical bills, and a mortgage, can file for Chapter 13 Bankruptcy. The court helps consolidate these debts into a single payment plan, making it easier to manage finances.
Frequently Asked Questions (FAQs)
Q: Can I still lose my home if I file for Chapter 13 Bankruptcy?
A: Filing for Chapter 13 Bankruptcy generally protects your home from foreclosure as long as you adhere to the repayment plan approved by the court.
Q: How long does a Chapter 13 Bankruptcy stay on my credit report?
A: A Chapter 13 Bankruptcy typically remains on your credit report for seven years from the date of filing.
Q: Am I eligible for Chapter 13 Bankruptcy?
A: Eligibility depends on having a regular source of income and unsecured debts (such as credit card debt or medical bills) below a certain threshold, which is periodically adjusted. The court will evaluate your financial situation to determine if you qualify.
Chapter 7 Bankruptcy:
A type of bankruptcy that involves liquidating a debtor’s non-exempt assets to pay off creditors. Unlike Chapter 13, it does not require a repayment plan.
Automatic Stay:
An automatic injunction that stops lawsuits, foreclosures, garnishments, and all collection activities against the debtor the moment a bankruptcy petition is filed.
Discharge:
The release of a debtor from personal liability for certain types of debts. In Chapter 13, this typically occurs after successful completion of the repayment plan.
Trustee:
An individual appointed to oversee and administer the bankruptcy process, including verifying the debtor’s repayment plan and making required disbursements.
Online Resources
- U.S. Courts - Bankruptcy Basics: USCourts.gov
- Consumer Financial Protection Bureau (CFPB): ConsumerFinance.gov
- National Association of Consumer Bankruptcy Attorneys: NACBA.org
References
- United States Bankruptcy Code, Chapter 13
- National Consumer Law Center - “Bankruptcy Basics”
- Official website of the U.S. Bankruptcy Court
Suggested Books for Further Studies
- “The New Bankruptcy: Will It Work for You?” by Stephen Elias
- “Chapter 13 Bankruptcy: Repay Your Debts” by Robin Leonard and Kathleen Michon
- “Bankruptcy and Debtor/Creditor: Examples & Explanations” by Brian A. Blum
- “Nolo’s Essential Guide to Bankruptcy” by Stephen Elias and Kathleen Michon
Real Estate Basics: Chapter 13 Bankruptcy Fundamentals Quiz
### What kind of bankruptcy allows individuals to keep their assets while repaying debts?
- [x] Chapter 13
- [ ] Chapter 7
- [ ] Chapter 11
- [ ] Chapter 12
> **Explanation:** Chapter 13 Bankruptcy allows individuals to set up a repayment plan to pay off debts over time while retaining ownership of their assets.
### How long is the typical repayment plan under Chapter 13 Bankruptcy?
- [x] 3 to 5 years
- [ ] 1 to 2 years
- [ ] 5 to 7 years
- [ ] Up to 10 years
> **Explanation:** The repayment plan under Chapter 13 Bankruptcy typically spans 3 to 5 years, during which time the debtor makes monthly payments to creditors.
### What does Chapter 13 Bankruptcy primarily protect against?
- [ ] Tax evasion
- [ ] Medical debts
- [x] Foreclosure
- [ ] Student loans
> **Explanation:** Chapter 13 Bankruptcy primarily protects against foreclosure by allowing the debtor to restructure their debt and catch up on missed payments.
### How long does Chapter 13 Bankruptcy stay on a credit report?
- [x] 7 years
- [ ] 10 years
- [ ] 5 years
- [ ] 3 years
> **Explanation:** Chapter 13 Bankruptcy typically remains on a credit report for seven years from the date of filing.
### Who approves the repayment plan in a Chapter 13 Bankruptcy?
- [x] The bankruptcy court
- [ ] The debtor’s creditors
- [ ] A financial advisor
- [ ] The Internal Revenue Service (IRS)
> **Explanation:** The repayment plan in a Chapter 13 Bankruptcy has to be approved by the bankruptcy court.
### What happens if a debtor fails to adhere to the repayment plan under Chapter 13?
- [x] The bankruptcy protections may be lifted
- [ ] The debt will automatically be forgiven
- [ ] The payments will be reduced
- [ ] The creditor cannot take any action
> **Explanation:** If a debtor fails to adhere to the repayment plan under Chapter 13, the court may lift bankruptcy protections, and creditors could resume collection activities, including foreclosure.
### Can someone file for Chapter 13 Bankruptcy if they have irregular income?
- [ ] Yes, anyone can file regardless of income source
- [x] No, a regular source of income is required
- [ ] Only high net-worth individuals can file
- [ ] Only self-employed individuals can file
> **Explanation:** Chapter 13 Bankruptcy requires the debtor to have a regular source of income to ensure consistent repayments.
### Does Chapter 13 Bankruptcy require liquidation of assets?
- [ ] Yes, assets are always liquidated.
- [x] No, it typically allows for keeping assets.
- [ ] Only properties worth over a certain amount are liquidated.
- [ ] Assets are selectively liquidated based on debt type.
> **Explanation:** Chapter 13 Bankruptcy typically allows debtors to keep their assets while they repay debts according to the court-approved plan.
### Which entity oversees the administration of the Chapter 13 repayment plan?
- [ ] The IRS
- [x] The Trustee
- [ ] The creditors
- [ ] The Consumer Financial Protection Bureau (CFPB)
> **Explanation:** A Trustee is appointed to oversee and administer the Chapter 13 repayment plan, ensuring that payments are properly managed.
### What is an automatic stay in the context of Chapter 13 Bankruptcy?
- [x] An injunction stopping collection actions against the debtor.
- [ ] A freeze on the debtor's bank accounts.
- [ ] A requirement for immediate full debt payment.
- [ ] A negotiation period with creditors.
> **Explanation:** An automatic stay is an injunction that stops lawsuits, foreclosures, garnishments, and all collection activities immediately after a bankruptcy petition is filed.
