Why Is It Called a Chapter 13?
So you are facing a mountain of debt, but have some income. Your attorney or a friend has recommended that you seek protection under “Chapter 13.” But what does that mean? Why is it called a Chapter 13 bankruptcy, and what does that look like? This form of bankruptcy is called Chapter 13 because it is provided for in Chapter 13 of Title 11 of the United States Code. (When Congress passes a law it become part of the United States Code. Title 11 of the United States Code provides for the country’s bankruptcy laws and is known as the Bankruptcy Code)
Chapter 13 bankruptcy is often called a “reorganization bankruptcy”, but that term is often misleading. It is more appropriate to call Chapter 13 a “partial repayment bankruptcy”. In a Chapter 13 bankruptcy your attorneys work with you to craft a Chapter 13 bankruptcy plan where you will make monthly payments to a Chapter 13 trustee. These payments will be payments that you can afford each month. The Chapter 13 trustee will distribute these payments according to your Chapter 13 plan. Your unsecured creditors will typically receive only a portion of what they are owed. At the end of 3 to 5 years the unpaid balances will be wiped out.
When you file for protection under Chapter 13, as with other forms of bankruptcy, you are immediately subject to the protections established under the automatic stay. The automatic stay prohibits your creditors from calling, writing, pursuing legal action or making any other effort to collect your debts, other than through the bankruptcy proceedings. So the calls and letters must stop, and any legal proceedings that are already underway must be suspended.
Contact John Hargrave and Associates
We have provided comprehensive bankruptcy counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.