What is a chapter 13 bankruptcy?

Chapter 13 of the United States Bankruptcy Code allows for debt reorganization rather than the debt liquidation that occurs under a chapter 7 bankruptcy.  Under chapter 13, a person is protected by the bankruptcy court while he or she repays all or part of the debt.  That protection includes a ban on debt collectors taking any action against the debtor outside of the bankruptcy process.  This ban is called the “automatic stay,” and it means that debt collectors are not allowed to call, send letters, or take any legal action directly against you once you file for bankruptcy. 
For both forms of bankruptcy, there are exemptions that protect some of your property from being taken.  For example, these exemptions protect the equity you have in your car and your home up to a specific dollar amount.  They also protect your personal property, including firearms and jewelry, up to a specific dollar amount.  There is even a “wildcard” exemption that you can apply to just about any property you choose. 
Unlike a chapter 7 case, in which a debtor surrenders non-exempt property for liquidation, chapter 13 allows the debtor to retain some non-exempt property while making monthly payments on the debt.  The chapter 13 payment a person makes on the debt depends on the person’s disposable income, which is how much the person has left over each month after paying living expenses.  Chapter 13 generally allows for a fairly generous budget for living expenses, including an allowance for entertainment each month.  This budget ensures that your life doesn’t stop when you file for bankruptcy.
If you have questions about chapter 13 or chapter 7 bankruptcy, contact Owings Law for a free bankruptcy consultation today.  Our bankruptcy lawyers are here to answer your legal bankruptcy questions.