What is a Chapter 13 Bankruptcy?

by | Feb 27, 2013 | Law

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If you find yourself in a position where you need to file for bankruptcy protection, most likely you will file either a Chapter 7 or a Chapter 13 bankruptcy. A Chapter 13 bankruptcy in Marion Il is also known as a reorganization or repayment bankruptcy. Unlike a Chapter 7 in which your debt is liquidated– as are most of your assets– a Chapter 13 plan allows a person to keep most or all of his or her property, regardless of whether the asset is considered exempt or nonexempt. The process to file for a Chapter 13 bankruptcy is more sophisticated than a Chapter 7, so you should anticipate the attorney’s fees to be higher.

What distinguishes a Chapter 13 bankruptcy in Marion Il from a Chapter 7 is the time commitment. A Chapter 7 is over and done with in just a few months, but a Chapter 13 can last upwards of five years. The reason for this is that a Chapter 13 involves you making regular monthly payments to the court-appointed trustee until your agreed upon plan is completed. It is your income level that determines how many years you will have to make payments. The timeframe is generally between three to five years.

The trustee will review how much money you make by doing a means test. This test will determine the amount of disposable income you have, and that income is what will go towards your monthly plan payments. Based upon the results of the means test calculation, creditors without secured debt– things like credit cards bills and medical bills– may not get any money, but those with priority claims like tax debt and child support payments will receive money.

The process to filing for Chapter 13 bankruptcy in Marion Il is the proposal by your attorney of what you can afford to pay. This proposal is done in good faith, meaning you are accurately representing your financial situation and you are not trying to mislead or defraud the court. The plan must meet another test known as the ‘best interest of creditors’ test which states the Chapter 13 plan would pay unsecured creditors at least what they would have received had you filed for a Chapter 7 bankruptcy. Generally, most unsecured creditors get nothing in a Chapter 7 so this test is easily passed. The second test is the ‘best efforts’ test which requires the Chapter 13 bankruptcy in Marion Il plan pay these creditors a multiple of your disposable income. Again, they could get nothing.

If you are currently having serious debt problems, consider Law Office of Bradley P. Olson in Marion IL. They can provides chapter 13 bankruptcy help and advice.