Chapter 13 Bankruptcy may not be the right option.
Chapter 13 Bankruptcy is the most common type of bankruptcy filed in the United States. Also known as Wage Earner's Plan, Chapter 13 allows individuals to retain their possessions and repay their debts over a period of three to five years.
Individuals facing foreclosure oftentimes file Chapter 13 Bankruptcy in an effort to save their home. Filing Chapter 13 can stop foreclosure proceedings; however, the individual must continue making mortgage payments in a timely fashion.
Other advantages of Chapter 13 Bankruptcy include:
- Ability to reschedule secured debts to extend and lower payments
- Protects co-signers who are liable with the debtor on consumer debts
- Assign a Trustee to distribute payments to creditors
- Shields individuals from having direct contact with creditors
Chapter 13 Bankruptcy is an option available to any U.S. citizen. Eligibility requirements state unsecured debts must be less than $307,675 and secured debts less than $922,975. United States Bankruptcy Law 11 U.S.C. §§ 109,111 requires individuals to obtain credit counseling from an approved credit counseling agency within 180 days before filing.
Individuals can file Chapter 13 Bankruptcy on their own or with the help of an attorney. Most people prefer to hire an attorney to represent them and ensure all paperwork is properly filed. If an individual cannot afford an attorney, they may be entitled to pro bono legal assistance through their state or county Bar Association.
The first step of the bankruptcy process begins by filing a petition with the bankruptcy court in the judicial district where the debtor resides. The debtor is required to provide a list of assets and liabilities, current income and expenses, repayment plan and proof of credit counseling.
Three to six weeks after the debtor files Chapter 13 bankruptcy, there will be a meeting with the creditors. The trustee and creditors are allowed to ask the debtor questions and either accept or reject the proposed repayment plan. Creditors must file their claims with the court within 90 days of the creditor meeting. Once these terms have been met, a hearing on the debtor's Chapter 13 repayment plan will take place in front of a Bankruptcy Judge.
A bankruptcy judge may either accept or reject the repayment plan or make modifications to it. If the plan is approved, the debtor must make regular payments to the Trustee until the reorganized debts are paid in full. During the repayment plan, the debtor cannot take on any new debt without first consulting the Trustee. An example of this would be if the debtor needed to replace an automobile or obtain a loan for college tuition.
Chapter 13 Bankruptcy has undergone dramatic changes within the last three years. It is a complex and lengthy process that can significantly improve the debtor's financial situation and help get them back on track. However, it can also keep people on an excruciatingly tight budget. Before making a final decision, it's highly recommended to conduct thorough research via the Internet or by consulting with a qualified bankruptcy attorney.
Chapter 13 Bankruptcy manual and forms can be downloaded at U.S. Bankruptcy Courts.
Published on March 01, 2008 at 08:00 AM