Let’s take the mystery out of what is chapter 13 bankruptcy and eliminate your questions. No sense for you to labor under false assumptions and guesses.
Bankruptcy is a legal process that allows consumers to allow the court to intervene between them and their creditors in order to put together a plan to repay creditors based on what the individual can afford. A chapter 13 bankruptcy is typically used when people make too much to qualify for a chapter 7 bankruptcy or they have a lot of equity in a house or want to keep the house but stop the foreclosure.
While a chapter 13 bankruptcy used to be called a wage earners plan, I don’t know anyone today that commonly refers to it as such. People typically think of it as a consolidation or repayment plan where they make monthly payments, over three to five years at 0 percent interest on unsecured debt. At the end of that time and remaining unsecured debt will be discharged. A chapter 13 bankruptcy is only reported on the consumer credit report for seven years.
The most common use of a chapter 13 bankruptcy I’ve seen are by people who may be on the verge of losing their home to foreclosure. Up until the foreclosure sale occurs the consumer can file a chapter 13 bankruptcy to stop the sale. Once filed the consumer will need to embark on a monthly repayment program, with payments going to the assigned bankruptcy trustee.
In order to keep their home the consumer must make at least their regular mortgage payment plus enough extra to get caught up in six months or so. This can be made affordable when the unsecured debt as part of the chapter 13 bankruptcy is adjusted and the consumer only makes partial payments towards that debt.
While in a chapter 13 bankruptcy the creditor cannot pursue collections activity, garnish wages, or sue the consumer for the unsecured debt.
A tremendous advantage of chapter 13 is that it protects anyone who might have co-signed or be a co-applicant for a debt included. The chapter 13 bankruptcy protects the cosigner from liability.
A chapter 13 bankruptcy most nearly resembles a credit counseling program. The big exception is that the chapter 13 bankruptcy monthly payment is based on what the consumer can afford and remaining debt is wiped away. In a credit counseling program the monthly minimum payment is dictated by what the creditors want and no debt is eliminated.
How Chapter 13 Bankruptcy Works
A chapter 13 bankruptcy is much like a chapter 7 bankruptcy in that it requires:
- a pre-filing credit counseling certificate;
- completion of bankruptcy forms which list assets, liabilities, income and expenses;
- a meeting with the bankruptcy trustee; and,
- at the end of the chapter 13 plan any remaining unsecured debt will be discharged or wiped away.
I always recommend that anyone considering filing bankruptcy use the professional services of a licensed bankruptcy attorney. In fact you can click here to find a local bankruptcy attorney for you to use. While it is possible for someone to file their own bankruptcy case with the court, the issues created by making a mistake can be very costly and create legal liability. I would no more file my own bankruptcy than I would fill my own cavity. There is no substitute for competent legal experience when filing bankruptcy.
The bankruptcy attorney fee can generally be lumped into the bankruptcy payments so you can essentially get an installment plan to pay for the bankruptcy attorney services. You don’t need to worry about having a big fee in advance of filing a chapter 13 bankruptcy.
If there is something that comes up or your circumstances change you can back out of the chapter 13 bankruptcy, but it will remain on your credit report. Then you can convert your case to a chapter 7 bankruptcy and eliminate your debt in just a few months. Many chapter 13 cases wind up being terminated early or converted to a chapter 7 bankruptcy.
Questions About Chapter 13 Bankruptcy
If you click here to find a local bankruptcy attorney the attorney will be more than happen to consult with you for free either over the phone or in person. You should feel free to ask all the questions you can in order to make an educated and informed choice to determine if filing a chapter 13 bankruptcy is right for you.