What Is a Chapter 13 Bankruptcy?

Consumers looking for debt resolution often ask, "What is Chapter 13bankruptcy?" Chapter 13 is a legal means of resolving personal indebtedness, preferably when other avenues have been tired. Debtors who file petitions have reached a point where duty owed far exceed income or an ability to repay. Some face losing homes, businesses, and prized material possessions that have taken a lifetime to accumulate. Fortunately, for individuals and businesses that face home foreclosures and repossessions, or go out of business due to a lack of capital, the U.S. Bankruptcy court system offers opportunities to legally file financial insolvency. Filings come under Chapters 7, 11, and 13 of the federal law, with the latter being the petition chosen most by debtors who are gainfully employed or have a source of steady income. A Chapter 13 filing, also called a wage earner petition, requires employed individuals to establish a court-ordered debt management plan under which creditors are paid within a three- to five-year period. Those who ask, "What is Chapter 13 bankruptcy may have heard the term "wage earner," but not many debtors are familiar with the process of filing.

When inquiring consumers ask, "What is bankruptcy?" they usually have no idea that the process can be so tedious. Bankruptcy doesn't happen overnight, and debt that was incurred by a failure to make timely payments over a long period of time cannot be easily remedied without a systematic plan to settle delinquent accounts. Trustees are charged with the responsibility of deciding which secured and unsecured claims are to be paid and how much disposable income debtors can afford to contribute to the plan. A chapter 7 petition liquidates debtor assets to settle creditor claims, in compliance with a court-ordered debt resolution plan. But, the question, "What is chapter 13 bankruptcy?" is best answered prior to filing. The federal government is interested in re-educating debtors regarding the fine points of personal financial management before coming to court. Debtors are required by law to attend an approved consumer credit counseling agency within six months prior to filing.

A court-appointed U.S. trustee or administrator oversees and distributes the debtor's disposable income to settle secured and unsecured creditor claims. Secured claims are those filed by lien holders of property which can be used as collateral, such as homes, cars, equipment, or inventory. Unsecured creditors can file claims, however since these claims are collateral-free, they are considered secondary. The court defines disposable income as wages or other liquid assets filers receive on a regular basis. Child support payments and assets necessary for the debtor's subsistence are exempt. Distressed debtors who wonder, "What is Chapter 13 bankruptcy?" will get a firsthand look at insolvency when repayment plans are implemented by the U.S. Bankruptcy Court. But, the three- to five-year court-mandated debt resolution plan can actually benefit the debtor in the long run.

When the question arises, "What is chapter 13 bankruptcy?"  many people begin to grow concerned about their financial welfare. However, there should be an even greater concern for the condition of one's soul. And just as financial indebtedness doesn't happen overnight, neither does spiritual destitution. "Because thou say, I am rich, and increased with goods, and have need of nothing; and knows not that thou art wretched, and miserable, and poor, and blind, and naked: I counsel thee to buy of Me gold tried in the fire, that thou May be rich; and white raiment, that thou may be clothed, and that the shame of thy nakedness do not appear; and anoint thin eyes with eye salve, that thou May see. As many as I love, I rebuke and chasten: be zealous therefore, and repent" (Revelation 3:17-19).

Counseling sessions may convince debtors who wonder, "What is chapter 13 bankruptcies?" that filing is not the best move to make for a particular financial situation. Some indebtedness can be cured by consolidation or debt reduction. Filing chapter 13 bankruptcy although a commendable effort on the debtor's part to satisfy unpaid claims also has serious repercussions. Filings remain on credit reports for up to ten years and can have an adverse effect on a debtor's ability to obtain future financing. Debtors should refrain from filing wage earner petitions for consumer debt protection, or from filing chapters 7 bankruptcy and 11, unless every other means of debt reduction or relief have been exhausted. Before taking such a drastic measure to file for insolvency, debtors should consult with consumer counseling agencies to help determine the best method of resolving personal or business indebtedness. Financial counselors can help individuals restructure and consolidate debts before they get out of hand. Businesses can also devise a plan to restructure expenses before fiscal affairs get to a point of no return.

Perhaps the question, "What is chapter 13 bankruptcy?" is one that we all need to ask in order to become more informed and less apt to incur debts that we cannot pay. Insolvency not only reflects poorly on consumer credit reports, but filing can prohibit qualified applicants from securing a good job. Today's prospective employers not only screen for drug and substance abuse, but many also require clean credit records and good scores. An insolvency filing is like a bold, black mark on a consumer record which sends a red flag to a prospective employer, especially in high-security enterprises, such as law enforcement and financing. By studying both the symptoms and the repercussions of filing insolvency, consumers can avoid the headache, the hassle, and the haunting embarrassment of long term financial failure.