Chapter 13 Bankruptcy

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Chapter 13 bankruptcy is “reorganization” of debts by individual wage earners. It is for people who cannot pay their debts as they come due, but don’t want to liquidate their assets. Instead of giving up the assets to be distributed amongst the creditors, a Chapter 13, like a Chapter 11, is a court-supervised negotiation process between creditors and the applicant. The creditors usually have a strong incentive to negotiate in good faith, as bankruptcy applicants don’t usually have much in the way of non-exempt property that can be used to satisfy debts if it were converted to a liquidation.

Chapter 13 is often used by people who cannot satisfy the “means” tests required to file for Chapter 7.

Chapter 13 plans typically call for the debtor to may down part of all of the debts over the course of 3-5 years. Modifications are also available by court order if circumstances change in the course of carrying out the plan.