If you are like a lot of people in Illinois, you might not know that there are multiple types of consumer bankruptcy plans. When most consumers think about bankruptcy, they automatically think about losing assets. This can happen with a Chapter 7 bankruptcy, called a liquidation bankruptcy as assets may be seized in order to repay creditors. However, this does not happen with a Chapter 13 bankruptcy plan.
A Chapter 13 bankruptcy is often called the wage earner’s plan. As explained by the United States Courts, this type of plan is essentially a type of structured repayment plan. Instead of dismissing all debts immediately as in a Chapter 7 plan, debts are consolidated and a trustee negotiates repayment terms with each creditor. The debtor then sends in monthly payments to the trustee and the trustee distributes money to each creditor per the agreements made.
A Chapter 13 plan lasts anywhere from 36 months to 60 months. At the end of the plan, a discharge is achieved. This type of plan does require the debtor to have sufficient income and employment to support the monthly payments as well as to support themselves in the interim. It can be a beneficial option for people who do not want to lose their homes, vehicles or other assets but still need bankruptcy relief.
This information is not intended to provide legal advice but is instead meant to give residents in Illinois an overview of how a Chapter 13 bankruptcy works and when they may consider this form of bankruptcy plan over a Chapter 7 plan.