The U.S. Bankruptcy Court reported that Massachusetts residents filed over 22,000 bankruptcy applications from Sept. 2009 to Sept. 2010, and more than 20,000 applications from Sept. 2010 to Sept. 2011. Although a majority of these filings were for Chapter 7 bankruptcy, over 5,000 people a year qualified and filed for a Chapter 13 "wage earner" repayment plan.

Why File for Chapter 13 Bankruptcy?

During the last several years millions of Americans have endured a deteriorating job market, the inability to pay down their debts (including mortgages), as well as increasing volatility on Wall Street. Seeking assistance, many of these individuals decided that bankruptcy could provide relief from creditors, potentially save their home and grant them a fresh financial start.

Chapter 13 bankruptcy is not available to everyone - a debtor's liabilities must not exceed certain maximums, and he or she must have enough disposable income to stick to a three to five year repayment plan.

The first benefit of filing for Chapter 13 bankruptcy is that debtors receive instant relief from collection efforts. As soon as the bankruptcy petition is filed an "automatic stay" goes into effect, which prevents creditors from initiating or maintaining any collection attempts. Creditors rarely violate the stay because severe punishments usually follow.

Next, qualified Chapter 13 debtors keep all of their property - including the family home - and are not required to liquidate any of their assets to repay creditors. Rather, a repayment plan of three to five years is developed and submitted to both the court and creditors for confirmation. Once confirmed, a debtor furnishes their disposable income to pay creditors for the duration of the plan.

Finally, a debtor is entitled to discharge of most remaining debt after all plan payments have been made. However, creditors typically receive more from a debtor in a Chapter 13 bankruptcy than in Chapter 7 cases, so really all parties benefit from this process.

Take the First Step

Bankruptcy is governed by complex statutes, rules and procedures. Anyone considering bankruptcy should speak with an experienced lawyer immediately to discuss their Chapter 13 eligibility and plan their financial future.