Chapter 13 bankruptcy is typically the bankruptcy option people turn to if they do not qualify for Chapter 7 bankruptcy. This type of bankruptcy is not designed to completely wipe out debt. Instead, it is the type of bankruptcy that allows the debtor to create a feasible plan to repay all of his or her debt. Debts are often repaid at only pennies on the dollar—meaning that only a fraction of the outstanding debt will ever need to be repaid.
The idea is that the debtors will propose plans to their creditors to repay all of the debt using an installment plan that will last anywhere between three to five years. The time frame is set at three years if the current monthly income of the debtor is set to less than the applicable state median set forth by law. However, the court can always approve longer repayment terms if there is a good cause for it. No plans are allowed to last longer than five years.
During this time frame, all creditors are prohibited from starting or continuing collection efforts against the debtor. For this type of bankruptcy, it is not required that you sell your assets in order to pay off your debt. This aspect often makes Chapter 13 bankruptcy very appealing. There is no income limit on this type of bankruptcy, but you are limited to the amount of debt you can file under Chapter 13 bankruptcy. Currently, the debt limits are set at $394,725 of unsecured debt and/or $1,184,200 of secured debt. If you have debt that is more than these amounts, you are not eligible to file for Chapter 13 bankruptcy.
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