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Why Chapter 13 bankruptcy filings can help some debtors

For Washington, D.C., area residents who are in deep debt, even though they hold steady jobs and pay basic bills each month, the prospect of getting out of debt can seem daunting. Fortunately, the federal bankruptcy code offers these people a way out that does not involve liquidating their properties and assets.

Chapter 13 bankruptcy, commonly known as the "wage earner's plan," helps debtors who have regular income by establishing a repayment plan they can live with. Approved installment repayment plans, which work to consolidate debts and then pay them off, typically run three to a maximum of five years and provide protection from creditors. The difference between three and five years depends on debtors' monthly income when they apply for bankruptcy. If the current income is above a specified median income level, they are usually required to submit a five-year plan for approval. Income levels below the median must be for three years unless a court is convinced an exception is warranted.

Many creditors will accept the terms of a Chapter 13 bankruptcy out of fear they might never see any or little repayment of debts. For them, half a loaf is better than none. During the repayment period, they are forbidden from making any effort to collect debts.

One of the best things about Chapter 13 is that it can help someone keep the person's home. A homeowner can stop any foreclosure proceedings once bankruptcy is approved. As long as the person makes payments on time during bankruptcy, no foreclosure is possible.

Because of its requirements, a bankruptcy application can be complicated. An experienced D.C.-area attorney with experience in debt and bankruptcy protection can provide current and accurate information on state median income levels and other essential information for the debtor who wants to consider Chapter 13.

Source: United States Courts, U.S. Bankruptcy, "Chapter 13 - Individual Debt Adjustment," Accessed March 21, 2015

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