What Is A Chapter 13 Bankruptcy?

A. Chapter 13, which has also been known as a wage earner's plan, is used by about 25% of consumers. In Chapter 13, consumers work out a periodic payment plan with their creditors to pay off their debts, or at least substantial portions of the debt. Generally the creditors expect to get more than they would have received from the debtor's estate if the debtor had sought a complete liquidation under Chapter 7.

One of the important benefits of Chapter 13 is that debtors generally continue to live in their home so long as they comply with the terms of the Chapter 13 arrangement. If the debtor fails to comply, the Court treats the matter as a Chapter 7 liquidation. The disadvantage of Chapter 13 to the debtor is that the debts can linger for years, burdening future income.

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