Individuals With Regular Source Of Income Can Avail Bankruptcy Protection Under Chapter 13

Consumers and small business owners can file for bankruptcy protections under the different chapters of bankruptcy law such as Chapter 7, Chapter 11, Chapter 12, and Chapter 13. Chapter 7 bankruptcy is by far the most popular. If you are filing for protection under Chapter 7, you must make a complete disclosure of your property, debts, and financial activities over the past several years. After three months you will get a discharge with most of your debts and almost all of your property being liquidated.

Individuals can avail of reorganization programs under Chapter 12 and Chapter 13. While anyone can avail of Chapter 13, Chapter 12 is specifically for family farmers. Under bankruptcy law, for the purpose of Chapter 13, the term individual includes sole proprietors and independent contractors, but not business entities such as corporations or limited liability companies (LLCs). In a Chapter 13 bankruptcy, you prepare and file the same basic forms as you do in a Chapter 7 bankruptcy. However in addition to the forms, you must also submit a three or five year payment plan detailing how you intend to pay off certain debts in full and a portion of your unsecured debts. A Chapter 13 bankruptcy has certain advantages over a Chapter 7 bankruptcy. The debtor can include missed mortgage payments in the payment plan. But Chapter 7 continue to be more popular than Chapter 13 since the latter involves additional legal fees and the debtor receives a discharge only after the last payment as per the plan is made. This means a wait of three or five years. However 10% to 15% of the debtor who file a Chapter 7 petition are ordered by the court to convert their petition to a Chapter 13 petition because they have income to fund a repayment plan under Chapter 13.


Bankruptcy law requires debtors to undergo a credit counseling course before filing a Chapter 13 petition. After the debtor complete the credit counseling course, the debtor must complete and submit the forms which are similar to the Chapter 7 along with:
a payment plan describing how you intend to pay off all or some of your debts over the plan period
evidence of your federal and state income tax returns for the previous four years, and

You must make the payments under your Chapter 13 plan to the bankruptcy trustee overseeing your case. The payments must be made a regular intervals, generally monthly. The trustee will pay off the creditors according to the plan and also use the money to pay the trustee fees. Bankruptcy law requires a Chapter 13 debtor to devote all of his or her projected disposable income to the plan. Debtors whose gross average income over the six months before the filing is below the states median income must submit a three year plan while debtors whose average income is over the states median income must submit a five year plan. Hire the services of a bankruptcy law firm if you want to file for bankruptcy under Chapter 13