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What Is Chapter 13 Bankruptcy?

On Behalf of | Jul 12, 2010 | Bankruptcy

Around the United States, consumers are trying to get back on their feet following the recent economic crisis. As the recovery effort begins, many Americans are facing mounting debt and continued creditor calls. In some cases, bankruptcy is the financial fresh start that will help many consumers get back in the black.

Filing bankruptcy is not an easy decision, and should only be considered after all other options are exhausted. Â If you are considering filing, contact a dedicated bankruptcy attorney immediately. Â This person will advise you whether you are qualified for bankruptcy and guide you through the proceedings.

Bankruptcy is not a magic cure all for your financial problems, but there are a few benefits. It will immediately stop all creditors from seeking payment until after your debts are sorted out.  It will also allow you a chance to catch up on missed payments, prevent repossession of your car, stop foreclosure filing against your home and restore or prevent termination of your utility services.

Consult closely with your debt attorney, and be sure you understand what filing for bankruptcy cannot do. Â It cannot eliminate the rights of secured creditors, including those who hold mortgages for your home. Â Bankruptcy cannot discharge debts singled out by bankruptcy law, such as alimony, child support or student loans. Â It will not protect any cosigners on your debt or discharge debts that arise after bankruptcy is filed.

Chapter 13

Any time you file bankruptcy it is damaging to your credit history, but Chapter 13 will do the least permanent damage.  Generally a bankruptcy stays on your credit history for 10 years but if you receive your Chapter 13 discharge, the Chapter 13 will be off your credit report in 7 years from when you originally filed the Chapter 13. The Chapter 13 entails filing a plan with the court about how you will pay off your past due debts over a 3 to 5 year period of time.  It allows you to keep valuable property, including your car or your home, which could be lost in other forms of bankruptcy filing.

Your bankruptcy attorney will likely recommend Chapter 13 if you own your home and are in danger of losing it; if you are behind in your debt but could catch up given a little time; or if you have valuable property that is not exempt in other bankruptcy filings that you will not need to liquidate to pay your debts.

Should you decide to file, your Chapter 13 plan will need to be accepted by the Court and you will begin to make Chapter 13 payments to the Court-appointed Trustee. Â You will be responsible for making a monthly payment to the Trustee who will disburse the money to all of your creditors. Â Your bankruptcy attorney will be able to explain the payment process to you. Â You will also meet with the Trustee in a meeting with your bankruptcy attorney in which the Trustee will review the Chapter 13 Plan to determine if it is acceptable to the Court.

In determining what kinds of debts go into your payment plan, your bankruptcy attorney will first determine what kinds of debt you have. Â Your debts will fall into three categories: secured debts paid outside the payment plan; secured debts paid as part of the payment plan; and unsecured debts.

Secured debts like mortgage payments are generally paid outside of the payment plan and directly by you. Â These debts must continue to be paid on-time or else collection efforts can continue. Â Generally, secured debts like a car payment are paid as part of the payment plan. Â The car loan company will still receive their payment and generally cannot repossess your vehicle so long as you remain current with your Chapter 13 payment.

The final kind of debt called unsecured debt includes debts like credit card debt, personal loans, and medical bills. Â These debts are always paid in your Chapter 13 plan at 0% interest and generally at much less than the full amount owed. Â This is where the majority of consumers find the Chapter 13 to be the most beneficial to obtain the financial relief they are looking for.

Finally, any creditors outside the court’s payment plan – or debts accrued after bankruptcy was filed – must be paid on a timely basis.  These debts can include utility bills or credit card bills, and will fall outside the scope of the bankruptcy court’s jurisdiction.

Before deciding to file for Chapter 13 or any other form of bankruptcy, it is vital to consult with a dedicated debt collection lawyer. Â Only someone who is familiar with bankruptcy law can give you the best advice about how to proceed and whether bankruptcy is the best option for you.