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But how does a Chapter 13 work? Chapter 13 is also called the wage earners plan.
Unlike a Chapter 7, this plan will require you to pay all or a portion of your debts back.
The primary goal is to create a payment plan with your creditors to save you from foreclosure, garnishments or judgments.
The ability to stay in your home and reschedule your past due payments over the term of the plan is what makes Chapter 13 very attractive to many people.
To qualify, you must have regular income and be able to pay a significant portion of your debt off over a three to five year period.
Your unsecured debts must be less than $336,900 and your secured debts must be less than $1,020,650 During your plan, payments will be made directly to the trustee who will then distribute payments to your creditors.
During this period, you will have no direct contact with your creditors, saving you from harassment and stressful phone calls.
In fact, when you file Chapter 13, a stay goes into place immediately that prevents your creditors from taking any action against you.
The term of your bankruptcy will be determined by your income.
If your income is less than the state median, your bankruptcy plan will last for three years.
If it is greater than the state median, your plan will last for five years.
There are many documents that will be included in your bankruptcy petition.
This includes a list of your assets and liabilities, as well as your current expenses and income.
You will be required to provide a statement of your financial affairs and information on contracts or leases that have not expired.
You will also need to provide your recent tax returns, and proof of income for the two months prior to your filing.
If you anticipate an increase or decrease in your income during the duration of your plan, this must be disclosed as well.
On your bankruptcy petition, you will need to provide the courts will a detailed list of your debts.
This will include creditor information, the amount you owe and what the debt is for.
After your petition is complete there will be a meeting of creditors.
This will occur some time between 20 and 50 days from the filing of your petition.
You will be required to attend this meeting and testify.
Both your creditors and your trustee may ask you questions.
Before you file for bankruptcy, you will be required to attend a debt counseling course.
During this, you will formulate a repayment plan.
This plan must be submitted to the court for approval within 15 days of your initial petition being filed.
How a creditor is dealt with inside your bankruptcy will be determined by what type of debt they hold.
There are three types of debt: priority secured and unsecured.
Priority debt includes the cost of the actual bankruptcy proceedings and taxes.
These claims must be paid in full within the bankruptcy plan.
Anything that is collateralized, like your home or vehicle loans, will be considered secured debt.
If the loan was used to purchase the item that secures the loan, secured creditors must receive full payment.
If the loan was not for "purchase money", the creditors must receive the full value of the collateral.
Unsecured includes things like personal loans and credit cards.
These do not have to be paid at all.
However, the debtor must pay out all disposable income and the debtors must receive as much as they would have under a Chapter 7 Bankruptcy plan.
All unsecured creditors must file a claim within 90 days of the first meeting of creditors.
If you file Chapter 13, you will be required to begin making payments to the courts within 30 days of filing.
Sometime within 45 days of the initial meeting of creditors, the bankruptcy judge will hold a hearing.
At this hearing, the determination will be made as to the feasibility of the repayment plan.
If the court agrees with the plan, at this time the trustee will begin distributing funds to the creditors.
This will continue for the duration of the plan.
If you fail to make timely payments, your bankruptcy will be dismissed.
If you qualify, you may be able to convert your bankruptcy to a Chapter 7.
At the end of your bankruptcy plan, if all goes well, you will receive a discharge from the courts.
This will release you from any unsecured debts that were not paid in your plan.
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