For individuals and businesses, Chapter 13 bankruptcy is a reorganization, because the person or enterprise is able to pay off debts over a three-to five-year period. The filing protects them from debt collection, allowing them to pay off debt in an organized way that ultimately covers all financial obligations—not just to creditors who engage in the most aggressive collection tactics.

Certain types of property that are considered non-exempt in a Chapter 7 bankruptcy are also protected, allowing the individual to continue to hold those assets. For a business, retention of property allows operations to continue, ultimately enabling the owners to pay off debts because their business continues to generate an income. If you are considering filing a Chapter 13 bankruptcy, an Evansville lawyer from Dunlap & Nesmith, LLC can help you.

In a Chapter 13 bankruptcy in Indiana, you can retain certain non-exempt property items. Most individuals are primarily interested in retaining their principal residence and avoiding foreclosure. Note that under Chapter 7 you can only keep $22,750 (Indiana) or $27,900 (Kentucky) of value from the sale of your home. Other assets and property you can retain in Chapter 13 are cars, tangible property, retirement savings, medical savings accounts, and proceeds from insurance and other legal settlements.

You are still responsible, however, for all mortgage and property tax payments. Basically, you must have a predictable flow of income that can cover certain ongoing financial obligations, as well as pay off other debts over time.

Characteristics that qualify an individual for Chapter 13 bankruptcy

Chapter 13 bankruptcy filers should know that the 2005 revision of federal laws actually discourages individuals from filing under Chapter 7. Lawmakers determined that a better outcome for all was reorganization when certain conditions exist, including the following:

  • When the filer intends to repay debts and has an income sufficient to do so, but needs protection from creditors by way of the court to allow an orderly approach to paying those debts
  • If the filer is delinquent in auto and mortgage loan payments, but has the capacity to catch up on those payments if other debts are restructured
  • When the filer has non-exempt property of considerable value (in addition to a home and car, furniture, trade tools including highly technical equipment, and vehicles)
  • When the filer has gone through another Chapter 7 bankruptcy within the preceding eight years, which makes him or her ineligible for a second.

Note that you can convert a Chapter 13 filing to a Chapter 7 if conditions change.