Chapter 13 bankruptcy is frequently also known as reorganization bankruptcy and also as a wage earner's plan. This allows individual consumers to work out a repayment plan for their debt which is supervised by the bankruptcy court. With this type of bankruptcy, consumers are given a period of time, usually three to five years, to repay all of the debt they have incurred. One of the bright spots of this particular chapter of bankruptcy is that creditors are not allowed to call you, harass you, or start any type of collections proceedings.

Each case is different but this chapter is ideally suited for some people when they are considering bankruptcy. By contrast with Chapter 7 bankruptcy, your debt is almost completely wiped out, although the bad news is that your assets may be sold or liquidated in order to pay off your debt. But with Chapter 13, you retain your assets and your debt is not eliminated but it is restructured so that you have the financial breathing room you need to comfortably and adequately make the payments.

Bankruptcy is not a debt consolidation loan, although some people may view it in that way. With Chapter 13, your financial obligations remain and you are not given any type of loan to pay them off. A repayment plan is defined and the funds are distributed to your creditors by a trustee which is appointed by the court. You no longer have any type of contract with your creditors, but that fact does not negate the fact that you still have financial obligations with each creditor. Certain types of debts are prioritized and are paid first.

If the liquidation of your assets is a concern, like having the mortgage company foreclose on your house, this type of bankruptcy may be perfect. Once Chapter 13 proceedings commence, any current or pending foreclosure procedure is stopped. If you have delinquent mortgage payments, those must be brought up to date and you must continue with your mortgage payments, but your home will not be foreclosed on.

The basis for this type of reorganization is that your debt is restructured and rescheduled to make it easier for you to comfortably make your payments. This is done through a variety of methods, including lowering the interest rate or extending the term of the loan to result in lower payments. The goal here is to allow you to make the payments, but with lower payments so that you can make them on time.

Chapter 13 bankruptcies can be used for an individual or an unincorporated business or self employed person can file chapter 13 bankruptcy, with limitations. The total amount of unsecured debt must be less than about $307,000 and the total amount of secured debt must be less than about $923,000. These limitations are periodically adjusted according to the consumer price index.

For bankruptcy eligibility, you must agree to attend credit counseling sessions. This is interesting because the majority of bankruptcy filings are not due to financial mismanagement, but more likely something out of your control such as a job layoff, a messy divorce, high medical bills, etc. The credit counseling agency must be approved by the court and they may charge a fee. If you cannot afford the fee, they will usually adjust the fee so that you can meet this requirement.

The bottom line is that Chapter 13 bankruptcy allows individuals some financial breathing room to repay their debts and does not require liquidation of their assets. A viable repayment plan is worked out so that debts can be repaid. This works for consumers who can still make payments but have found themselves with too much debt to handle at a particular time in their lives.