Steps involved in a Chapter 13 Bankruptcy

There are a number of things that a person in financial distress can do to overcome the situation, and bankruptcy should be sought only as the last resort. Bankruptcy refers to the legal status of a person or an organization in debt. People may fall into financial crisis because of a number of problems such as losing a job, foreclosure and mortgage adjustments, or medical issues.

There are two kinds of bankruptcy filings; Chapter 7 bankruptcy and Chapter 13 bankruptcy. Chapter 13 bankruptcy is a type of bankruptcy favorable to people who have regular monthly income and needs time to pay off their debts; whereas in Chapter 7 bankruptcy, most of the debts will be wiped out.

In Chapter 13 bankruptcy, the debtor does not have to surrender his/her real property, rather needs to pay off the debts in full or part within a specific time period. The court will confirm Chapter 13 bankruptcy only if the judge feels that the debtor can afford monthly payments to the extent of paying off the debts within a stipulated time. A debtor will be eligible for Chapter 13 bankruptcy only if s/he has sufficient regular income.

Before filing a Chapter 13 petition, a debtor should undergo credit counseling from an agency approved by the United States Trustee’s office. The credit counseling agencies may charge a nominal fee for their services. However, if the debtor is unable to pay, the credit counseling agency should provide counseling free of cost. The petitioner should also pay a prescribed filing fee which may vary from one state to another. Along with the Chapter 13 bankruptcy petition, the debtor should also file the repayment plan. This repayment plan should ensure that the debts are paid off in three to five years according to his/her monthly income. All priority debts including child support and alimony, employee wages, and tax obligations should be paid off in full. The second priority should be on secured debts such as mortgages and vehicle loans. Payments to unsecured creditors come third in the repayment plan.

Once the repayment plan is over, all remaining dischargeable debts will be wiped out. The debtor should also attend a budget counseling course under a U.S. Trustee approved agency.


Inside Steps involved in a Chapter 13 Bankruptcy