A popular alternative to a Chapter 7 liquidation proceeding is Chapter 13 bankruptcy. Only individuals are eligible under Chapter 13; its protections are unavailable to corporations or partnerships. A Chapter 13 bankruptcy is a form of debt consolidation; all the debts the individual owes to various creditors are combined into a single bill, and a payment plan is developed such that a portion of the bill can be paid over a 3 to 5 year time period. The goal is to enable financial rehabilitation for debtors who can fulfill the court-approved plan. This works best for individuals with a steady income and is known as the “wage earner’s plan.” Thus, the “means test” often requires debtors with sufficient income to proceed under Chapter 13.

The advantages of Chapter 13 are numerous. The debtor can stop foreclosures, repossessions, wage garnishments and lawsuits pending in State Court.  Also, debts that would not be dischargeable under Chapter 7 can be discharged under Chapter 13 at the conclusion of the payment plan. Chapter 13 plans take 3 to 5 years to complete. Soon after the petition in bankruptcy is filed, the repayment plan is created. This plan provides for repayment of a portion of the debtor’s debts, as well as a strict budget the debtor must comply with, under the close monitoring of the bankruptcy trustee. The amounts of payment and the length of the repayment plan period depend on numerous factors, including the debtor property value and the debtor’s income and expenses. Usually secured creditors, such as mortgage-holding banks, are entitled to greater portions of repayment than unsecured creditors like credit card companies.

If a debtor is unable to make the required monthly payments, the Chapter 13 bankruptcy fails and the debts will remain owed by the individual unless the case is converted to a Chapter 7 proceeding. However, exceptions to this general rule exist, such as in cases where the failure to make required payments is attributable to circumstances beyond the debtor’s control. In such cases, the bankruptcy court may grant a “hardship discharge”.

If you are in need of immediate debt relief, or are considering either a Chapter 7 or Chapter 13 individual bankruptcy, call our Dothan legal team at Boles Holmes White today for a consultation. We have the experience and expertise to guide you through the often confusing and daunting process, and we can ensure you are treated fairly and given the fullest protection under the law.  Call us today at 334-366-6086 or email us for a confidential assessment of your financial situation.