Definition
Chapter 13 bankruptcy is a legal process where a debtor’s wages are paid to a court appointed trustee, who then distributes the funds equitably to creditors over a period of 3-5 years. This is sometimes referred to as reorganization or a wage earner’s plan.
Analysis
A Chapter 13 bankruptcy is a way for insolvent individuals to partially or fully repay their debts over time. There can be substantial cost involved, as they make payments toward their debts for up to 5 years, plus they must pay fees incurred from the use of a court appointed trustee.
A Chapter 13 bankruptcy is a public record that is also recorded on credit reports. It will remain on credit reports for 10 years, which can restrict an individual’s ability to obtain credit with good terms in the future.
Chapter 13 bankruptcy may be appealing for distressed homeowners facing foreclosure. An automatic stay can prevent the foreclosure process from moving forward. Furthermore, it may be possible to reinstate a mortgage that has been accelerated.
