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What is Chapter 13 reorganization bankruptcy?

Chapter 13 bankruptcy is one type of personal bankruptcy that can help individuals who are struggling with debt to address their financial concerns. Unlike Chapter 7 liquidation bankruptcy, which allows the filing party to liquidate non-exempt assets to repay creditors, Chapter 13 bankruptcy allows the filing party to reorganize their debts and repay them according to a repayment plan developed with the bankruptcy court, which will ultimately allow the filing party to enjoy a fresh financial start without liquidating any of their assets.

In both a Chapter 7 and Chapter 13 bankruptcy filing, an automatic stay immediately goes into effect after the filing party files for bankruptcy protection. The automatic stay prevents creditor collection actions while the bankruptcy process progresses, which can provide valuable breathing room in many circumstances for individuals seeking bankruptcy protection.

To be eligible to file for Chapter 13 bankruptcy, the filing party must have a reliable source of income that allows them to repay their debts according to the structured repayment plan developed along with the bankruptcy court. Debts will be divided into categories, which will be part of the reorganization process with the bankruptcy court. The repayment plan typically extends for three to five years. Provided that the filing party abides by the repayment plan, debts not addressed by the plan can be discharged at the end of the bankruptcy process. It may also be possible to convert a Chapter 13 bankruptcy into a Chapter 7 bankruptcy, if needed.

If you are considering bankruptcy, you may have many important questions and you should understand the process and options available to you. As a result, it is helpful to be familiar with the different personal bankruptcy options available, the protections they afford and the best option to fit your needs.

Source:, "Chapter 13 Reorganization Bankruptcy," Accessed April 30, 2018

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