Chapter 13 Bankruptcy - Understanding The Procedure

Chapter 13 bankruptcy, which is sometimes referred to as a wage earners plan or a reorganizational bankruptcy, allows individuals to set up a repayment plan to pay off their debts. With chapter 13 bankruptcy, individuals make payment arrangements so that they can repay a portion or all of their debt over a three to five year period of time. All of the debt included in the bankruptcy must be repaid within the five year period. During this given period of time, creditors are not allowed to start or continue any type of collection efforts.

Each case is different but this chapter is ideally suited for some people when they are considering bankruptcy. By contrast with Chapter 7 bankruptcy, your debt is almost completely wiped out, although the bad news is that your assets may be sold or liquidated in order to pay off your debt. But with Chapter 13, you retain your assets and your debt is not eliminated but it is restructured so that you have the financial breathing room you need to comfortably and adequately make the payments.

While many people may view Chapter 13 bankruptcy as a debt consolidation loan, it really is not a loan in any sense of the word. The debt remains, only a restructured repayment plan is defined and the money is distributed to the creditors via a trustee appointed by the courts. Although the consumer no longer has a contract with the creditors, the fact that the debt still exists cannot be overlooked. Certain types of debts are given a priority and must be paid in full.

If the liquidation of your assets is a concern, like having the mortgage company foreclose on your house, this type of bankruptcy may be perfect. Once Chapter 13 proceedings commence, any current or pending foreclosure procedure is stopped. If you have delinquent mortgage payments, those must be brought up to date and you must continue with your mortgage payments, but your home will not be foreclosed on.

The basis for this type of reorganization is that your debt is restructured and rescheduled to make it easier for you to comfortably make your payments. This is done through a variety of methods, including lowering the interest rate or extending the term of the loan to result in lower payments. The goal here is to allow you to make the payments, but with lower payments so that you can make them on time.

Any individual, even if they are operating a business that is unincorporated or are self employed can file for chapter 13 bankruptcy as long as the overall unsecured debt is less than $307,675 and secured debt is less than $922,975. The baseline amounts are adjusted according to the consumer price index.

It is interesting to note that in order to be eligible to file for bankruptcy protection, you are required to attend credit counseling sessions. This is the law, even though the majority of bankruptcies are not done due to financial mismanagement. The agency providing this service must be approved by the courts. They may charge a fee, although that fee must be reduced if it is beyond your current means.

The bottom line is that Chapter 13 bankruptcy allows individuals some financial breathing room to repay their debts and does not require liquidation of their assets. A viable repayment plan is worked out so that debts can be repaid. This works for consumers who can still make payments but have found themselves with too much debt to handle at a particular time in their lives.

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