Chapter 13 Bankruptcy: When does it apply?

If the debtor’s current monthly income is less than the median income in the state in which he or she lives, the plan will be for three years unless the court approves a longer period “for cause.”  If the debtor’s current monthly income is greater than the median income in the state in which he or she lives, the plan generally must be for five years.  However, in no case may a plan provide for payments over a period longer than five years.  During that time, creditors are forbidden from starting or continuing collection efforts.

In order to better understand a chapter 13 bankruptcy, the following background information may be helpful:

• The Bankruptcy Code is the informal name for title 11 of the United States Code.
• A debtor is a person who files a petition for relief under the Bankruptcy Code.
• A creditor is one to whom a debtor owes money or who claims to be owed money by the debtor.
• Exempt property is property owned by an individual debtor that the Bankruptcy Code or state law permits the debtor to keep from unsecured creditors.  For example, in Florida a debtor can exempt the equity in his primary residence (the so-called homestead exemption).
• An unsecured creditor holds no special assurance of payment, such as a mortgage or lien.  Credit was extended based solely upon the creditor’s assessment of the debtor’s future ability to pay.
• A lien is the right to take and hold or sell a debtor’s property as payment for a debt.