Chapter 13 Debt Consolidation

Chapter 13 bankruptcy, often also called debt consolidation, is a legal debt relief process designed for individuals experiencing financial difficulties that have the ability to repay all or part of their debts in installments over a period of time, usually between three to five years. This type of bankruptcy is often used by people that are behind on secured debts such as a home or car because it can stop the foreclosure or repossession process and provide a defined plan for repayment of the same using future earnings as outlined in a plan filed with the Court.

In order to qualify to file a Chapter 13 bankruptcy, individuals must receive regular income and provide gross income information that is compared with a “median income test” created by the government to determine the length of the Chapter 13 plan as well as the amount of money that must be paid to the various creditors in each case. The Court must approve each plan before it can take effect. After the completion of all required plan payments, the Court will enter a discharge order for any remaining unpaid debts that are dischargeable under the law.

In a Chapter 13 bankruptcy, an individual may claim certain property and assets as exempt under governing State or Federal guidelines. Some examples of assets that are often protected in a Chapter 13 bankruptcy include most household items and clothing, a limited amount of cash on hand or money in a bank account depending on the exemptions used, the fair market value of a vehicle for each filing individual up to an established maximum exemption amount, a defined amount of equity held in a homestead and assets held in a 401K, IRA or other qualified retirement account.

Some debts are not dischargeable under the law. These debts include taxes and student loans, child support obligations and most criminal fines and restitution. A Chapter 13 bankruptcy however, may provide a potential financial solution for debts that can’t be discharged, especially when faced with delinquent tax debts or child support obligations; because it offers a restructuring plan to repay such debts without the continued threat of wage garnishment while the case is pending.

The process of filing and completing a Chapter 13 bankruptcy may last up to five years depending on the amount and type of debts owed, gross income and each individual’s specific circumstances. Anyone filing a

Chapter 13 bankruptcy case must receive two required courses during the bankruptcy process and attend a hearing in the presence of the bankruptcy trustee assigned by the government to their case in order to receive a Chapter 13 discharge.