There are two primary types of personal bankruptcy available to New York residents. While Chapter 7 involves a liquidation of non-exempt assets in order to pay creditors, Chapter 13 offers a different option through which individual debtors will not necessarily have to give up their assets.
Chapter 13 bankruptcy involves establishing a repayment plan that lasts between three and five years. If the plan is approved, the debtor will then pay the trustee, who in turn will divide the payment between the individual creditors and send the money to them. These payments are normally greatly reduced as compared to what they otherwise would be.
As long as the debtor makes all of the required payments on time during the repayment period, the remaining balances will be discharged upon successful completion of it. If a debtor fails to make a payment, however, the bankruptcy will be dismissed, and the debtor will then be subject to actions by the individual creditors. Chapter 13 has certain requirements. People must have a regular source of income that gives them the ability to make the plan payments. There are also dollar limitations on the amount of both secured and unsecured debt that a filer can have.
A Chapter 13 filing can be a very good alternative for some people who do not want to liquidate their assets but still are unable to manage their existing debt payments. As the process is generally more involved, people often need the help of a bankruptcy lawyer when choosing to file under the chapter. As long as the repayment plan terms are adhered to, the automatic stay preventing creditor action will remain in place during the entire plan period.
Source: InvestorPlace, "Should I File for Chapter 13 Bankruptcy?", Jessica Whitmore, Feb. 17, 2015