A Chapter 13 bankruptcy is filed by individuals who are either capable of paying back a portion of his or her debt or need to file it to protect assets that cannot be protected in a Chapter 7. It can also be filed when a debtor is behind on mortgage payments and is about to lose their home.
Chapter 13 Bankruptcy is a “reorganization” bankruptcy. It is basically a court-supervised debt repayment plan. Chapter 13 Bankruptcy allows you to restructure your debts into a payment plan that you can afford. Also, in a Chapter 13 Bankruptcy, there is no mandatory liquidation of your assets, which means you usually keep all of your property.
First your Petition is filed, most actions by your creditors are blocked or suspended by the “Automatic Stay.” The Automatic Stay prohibits your creditors from collecting on most types of debts. While in a Chapter 13, the debtor is protected by the Bankruptcy Court from collection actions. The law prohibits creditors from taking actions to collect debt without the Court’s permission. This include repossessing cars and foreclosing on real estate. For this reason, a Chapter 13 is an attractive option that can help save your assets.