Federal law, specifically Title 11 of the United States Code, sets forth the statutes governing the various types of bankruptcy relief. Different chapters of Title 11, specifically chapters 7, 11, and 13, detail the most common types of bankruptcy relief. Today’s blog summarizes the type of relief provided by Chapter 13. What is a Chapter 13 bankruptcy?

Chapter 13 of the Bankruptcy Code provides for the adjustment of debts of an individual with regular income allowing him or her to retain property and pay debts over a time period between three and five years. This type of bankruptcy is also referred to as a wage earner’s plan because it allows individuals with regular income to formulate a repayment plan to satisfy all or part of their debts.

By filing a chapter 13 bankruptcy case, debtors may propose a repayment plan whereby they make installment payments to creditors over a period of time lasting a minimum of three years but no longer than five years.

11 U.S.C. § 1322(d) of the bankruptcy code contains many important provisions regulating chapter 13 cases. If a debtor’s current monthly income is less than the California median income for similarly-situated debtors, distinguished by the size of the debtor’s household, a repayment plan must last no longer than three years unless the bankruptcy court approves a longer period “for cause.”

If a debtor’s current monthly income is greater than the California median income for similarly-situated debtors, distinguished by the size of the debtor’s household, the plan typically must last for five years (sixty months, i.e., sixty plan payments). What is significant is that for this entire time period, whether three years, five years or some period in between three to five years, the chapter 13 debtor’s creditors are prohibited from initiating or continuing collection efforts.

Thus, a chapter bankruptcy allows an individual to propose a plan of repayment to reorganize their financial affairs while under protection of federal law and the United States Bankruptcy Court.

To learn more about a chapter 13 bankruptcy, contact us online or schedule a consultation at any of our three conveniently located offices. Alberto Montefalcon has the expertise and experience to assist any potential bankruptcy debtor accurately determine whether a chapter 13 bankruptcy case filing is best for his or her personal financial, situation. Telephone our downtown Sacramento office at (916) 444-0440, our South Sacramento office at (916) 399-9944, or our Concord office at (925) 222-5929 for an appointment today.