Chapter 13 bankruptcy is used to reorganize personal or non-corporate debt. A plan is submitted to a judge for paying off all or nearly all of the debt over a specified period of time. Which statement best summarizes its purpose?

Chapter 13 bankruptcy is used to reorganize personal or non-corporate debt. A plan is submitted to a judge for paying off all or nearly all of the debt over a specified period of time. Which statement best summarizes its purpose?

• A. Reorganize personal or non-corporate debt with a repayment plan approved by a judge
• B. Reorganize corporate debt with a plan approved by creditors
• C. Liquidate assets to satisfy bankruptcy debts
• D. Cancel all taxes and penalties immediately

Answer: (A)

Chapter 13 is aimed at individuals with steady income who need to reorganize and repay a portion of their debts under a plan approved by a bankruptcy judge. The idea is to pay all or nearly all of the debts over a set period, while preserving assets and catching up on secured obligations. This makes the statement describing personal or non-corporate debt reorganized with a judge-approved repayment plan the best summary. Why the others don’t fit: reorganizing corporate debt with creditor-approved plans is characteristic of Chapter 11, not Chapter 13; liquidating assets to satisfy debts is the hallmark of Chapter 7; and canceling all taxes and penalties isn’t how bankruptcy generally works—tax debts have their own rules and aren’t automatically wiped out by Chapter 13.

Chapter 13 is aimed at individuals with steady income who need to reorganize and repay a portion of their debts under a plan approved by a bankruptcy judge. The idea is to pay all or nearly all of the debts over a set period, while preserving assets and catching up on secured obligations. This makes the statement describing personal or non-corporate debt reorganized with a judge-approved repayment plan the best summary.

Why the others don’t fit: reorganizing corporate debt with creditor-approved plans is characteristic of Chapter 11, not Chapter 13; liquidating assets to satisfy debts is the hallmark of Chapter 7; and canceling all taxes and penalties isn’t how bankruptcy generally works—tax debts have their own rules and aren’t automatically wiped out by Chapter 13.