Chapter 13 Bankruptcy Explained… Most debtors drowning in their credit card bills and monthly payments usually opt for Chapter 7, but another viable option he can consider is Chapter 13. What is the difference of this bankruptcy program than the more popular Chapter 7, and what are the advantages and disadvantages of Chapter 13 or also known as the debt reorganization bankruptcy program?
Where Chapter 7 bankruptcy gives debtors the chance to start anew by eliminating all dischargeable debts, Chapter 13 offers debtors the possibility of paying his debts through a repayment plan. The debtor filing for this bankruptcy program should have a regular income since this will ensure the court, as well as the creditor, that the debtor has the stability to pay his debts throughout the whole duration of the plan. Chapter 13 gives debtors who have experienced short term financial setbacks such as an illness or a large unforeseen expense a reprieve. This bankruptcy program is apt for debtors who do not want to lose their assets in the bankruptcy proceeding process.
What are the criteria for a debtor to be eligible for the Chapter 13 bankruptcy program? The debtor should have a stable monthly income to be able to pay his creditors, and the income should be enough that a disposable amount can be set aside each month to give to the trustee. Furthermore, the debtor should fall between the preset limits of the current secured and unsecured debts.
A debtor education or more popular known as credit counseling program is required of every debtor planning to avail of the Chapter 13 bankruptcy protection. This should be undertaken within 180 days before filing and from a US Trustee accredited counseling agency. The credit counseling certification should be submitted together with the debtor’s bankruptcy petition. Failure to do so may lead to the dismissal of your petition.
Once the debtor’s petition has been submitted, the court will call a meeting for the creditors and the debtor and a trustee randomly chosen will be assigned to the case. The moment the bankruptcy case is filed, an automatic stay is entered by the federal court where the creditors are prohibited from collecting payments or taking any action against the debtor. During this time, the debtor is to submit a repayment plan outlining in detail on how he will pay his debts. The creditors may object to the repayment plan the debtor has proposed, but the bankruptcy judge’s final say will be followed. A repayment plan will last for 3 years if the debtor’s monthly income is less than the median income level of the state, and will last for 5 years if the income is higher than the state’s median. The secured creditors are prioritized after which the remaining disposable income will go to unsecured creditors. This priority structure is also imposed by the bankruptcy courts. If all payments have been completed as scheduled, what remains of the unsecured debt after the plan ends can be also discharged.
Lastly, before the debtor is granted discharge another financial management course should be undertaken and the same as the prerequisite counseling program, this course should be approved the by office of the US Trustee to be valid.
As the debtor shall soon realize, the bankruptcy laws involve labyrinthine processes that only the most experienced bankruptcy lawyer has memorized. It is highly recommended to hire the services of a bankruptcy lawyer.