NFPA Paralegal Core Competency Exam (PCCE)Substantive LawHard
A paralegal is reviewing a client's bankruptcy petition. The client is an individual with significant unsecured debts (credit cards, medical bills) and wants to keep their home and car, which have some equity but are subject to secured loans. Which chapter of the U.S. Bankruptcy Code is most appropriate for this client, allowing for reorganization of debts while retaining assets?
- AChapter 11
- BChapter 12
- CChapter 13
- DChapter 7
Show answer & explanationAnswer & explanation
Correct answer: C. Chapter 13
Chapter 13 bankruptcy is designed for individuals with regular income who want to repay all or part of their debts over a period of three to five years. It allows debtors to keep their property, including homes and cars, by making regular payments under a court-approved plan.
Why the other options are wrong
- A. Chapter 11 (reorganization) is primarily for businesses, though high-income individuals can file it, it's generally more complex and expensive than Chapter 13.
- B. Chapter 12 is for family farmers and fishermen, not general individuals.
- D. Chapter 7 (liquidation) involves selling off non-exempt assets to pay creditors, which the client wants to avoid.
Chapter 13 Bankruptcy
A chapter of the U.S. Bankruptcy Code that allows individuals with regular income to develop a plan to repay all or part of their debts over three to five years, while retaining their property.
- Known as 'wage earner's plan' or 'reorganization for individuals'.
- Debtor keeps all assets, including non-exempt property.
- Requires a steady income to fund the repayment plan.
- Upon completion, remaining dischargeable debts are eliminated.
Memory trick: Chapter 13 is for 'C'onsumers '1-3' years to pay.