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What is Chapter 13 Bankruptcy?

Chapter 13 Bankruptcy is a type of bankruptcy that individual’s may file if they find themselves in over their head debt. While Chapter 7 bankruptcy is the most popular type of bankruptcy for individuals (see What is Chapter 7 Bankruptcy?), Chapter 13 bankruptcy affords individuals the opportunity to pay back all or some of their debt without liquidating their assets. If you are considering bankruptcy, it is important to consult a bankruptcy attorney in your state to help you determine if Chapter 13 bankruptcy is the best type of bankruptcy for you to file.

To be eligible to file Chapter 13 bankruptcy, your total debt must be less than a predetermined amount that is periodically adjusted. You must also have received credit counseling from an approved credit counseling agency within 180 days prior to filing your bankruptcy petition. In addition, prior bankruptcy petitions may affect your ability to file any type of bankruptcy. A bankruptcy attorney should be up to date on the qualifications you need to be eligible for Chapter 13 bankruptcy and advise you if this is the best option for you.

Upon filing a petition for Chapter 13 bankruptcy, you generally must submit a repayment plan within 15 days. The repayment plan should indicate how you plan to pay back creditors. If your annual income is below the median for an average household of your size in your state, you generally must make arrangements to pay back debt over a three-year period. If your annual income is above that median, you generally must make arrangements to pay back debt over a five-year period. Regardless of your financial circumstances, it is illegal for a payment plan to be longer than five years under a Chapter 13 bankruptcy.

Once you file your Chapter 13 bankruptcy petition, an automatic stay is in effect for your creditors. An automatic stay means that your creditors may not seek collection or take legal action against you during the period of your repayment plan under a Chapter 13 bankruptcy. Your creditors will be notified of your bankruptcy petition by the bankruptcy clerk and you will cease to have contact with them.

After your creditors are notified of your Chapter 13 bankruptcy, a meeting of creditors will be scheduled. During this meeting, you will be under oath and the trustee or bankruptcy administrator and your creditors may ask you questions about your financial affairs and the repayment plan you proposed. This meeting is an opportunity for you to resolve differences with your creditors. When your repayment plan is finalized, a judge will determine if it is fair and acceptable at a hearing.

Upon acceptance of your repayment plan, you will make regular payments to the trustee assigned to your case who will then distribute funds to your creditors. You may choose to have funds automatically withdrawn from your paycheck or you may make payments on your own. In this way, your debt is consolidated as you make one monthly payment to be dispersed by the trustee to all of your creditors.

Bankruptcy law is very complex and it is important to have the advice of a bankruptcy attorney before you file Chapter 13 bankruptcy on your own. An experienced bankruptcy attorney should be familiar with the most current laws and be able to help you come up with a feasible repayment plan.