A Chapter 13 bankruptcy is the specific type of legal proceeding that is granted under Federal statues to provide a repayment program for debts that are owed. Under Chapter 13 bankruptcy, a three-year or a five-year repayment plan is created for specific creditors according to the rules governing bankruptcy and through agreement by all parties involved. The arrangements are all overseen by a trustee who is appointed by the Federal court.
When someone files a Chapter 13, it means that they are not able to repay their debt obligations as they originally agreed to do when the debt was taken on. Chapter 13 bankruptcy law allows for these debts to be reorganized for the purpose of repayment. This is different than a Chapter 7 one, in which the debts are discharged immediately instead of being set up with a repayment schedule.
In most cases, a Chapter 13 one has a repayment plan in which the debtor makes monthly, bimonthly or weekly payments to the trustee. The trustee then provides help by taking care of properly dispersing the payments to the creditors. In most instances, the amount of the debt has been restructured and is less than the full amount that is owed to all the creditors.
It is the trustee in a Chapter 13 bankruptcy who is in the position of analyzing the financial situation of the person filing for bankruptcy, so that he can make a reasonable repayment plan and set the dollar amount of the payments that are to be made to the court monthly. The trustee looks at the earning potential of the family, or the individual, and notes any obligations and living expenses that are needed and then decides on the amount the debtor will be able to repay over the course of the repayment plan.
Because a Chapter 13 requires that regularly scheduled payments be made to the court, it is generally recommended only for debtors who have a regular and stable income. For those who are seasonal workers or freelancers, filing Chapter 13 bankruptcy is not the best solution for their financial troubles, in most instances.
When a debtor has agreed to the terms and payment plan of a Chapter 13, it is crucial that they always make their payment to the court on time. If they fail to make their payments as agreed, the entire court record and case can be thrown out.
Should this happen, the creditors once again have the right to come after the debtor for the full amount of the debt and the protections under the bankruptcy relief process would not be available to them until they are eligible to file it again.
If it occurs that a debtor, who is under a repayment plan through a Chapter 13, is not able to keep up with the payment schedule, then there is the possibility to find relief from the reorganization provisions agreed upon. In the case of a situation that arises, in which the debtor is unable to make the payments to the court as agreed, such as in the case of losing a job or other source of income or if they have an extended illness, they might be able to file a bankruptcy claim form known as a "hardship discharge."
For a debtor who has agreed to a Chapter 13 bankruptcy repayment plan to be able to seek a "hardship discharge," the case cannot qualify to be changed into a Chapter 7 one instead. It is best to have a bankruptcy attorney reviews the various guidelines and requirements before trying to make any type of changes to a Chapter 13 plan.
Any type of change to a filing Chapter 13 bankruptcy means that the debtor must return to the court and this step can be both stressful and expensive. Because of this, it is strongly recommended to make every effort to stick to the repayment plan.
Chapter 13 payments are prearranged when bankruptcy is approved through the court. In most instances, a Trustee is assigned to oversee the debtor's case and will disperse payments to creditors until accounts are paid in full. Occasionally, chapter 13 payments can be made directly through payroll deductions.
Once debt reorganization has been approved, Chapter 13 payments are clearly outlined in the repayment plan and leave little room for deviation. Consistent payments must be made to repay creditors, tax liens and mortgage payments, if applicable.
In cases where the debtor holds a mortgage, Chapter 13 bankruptcy can stop the foreclosure process. However, if the debtor fails to make mortgage payments in a timely fashion, the lender can commence with foreclosure proceedings.
In instances where the debtor fails out of bankruptcy, the court may order the individual to liquidate their assets under Chapter 7 Bankruptcy. This action requires the debtor to relinquish their property to the Trustee who will sell the assets and repay creditors.
Chapter 13 bankruptcy is available to all U.S. citizens. This chapter of bankruptcy allows individuals to reorganize their debt so they can retain their property and assets. Payments are extended over a period of time, allowing the debtor to make smaller monthly payments. In some instances, creditors will reduce interest rates or agree to a lesser amount than is owed on the debt.
With Chapter 13 bankruptcy, certain eligibility requirements must be met. Unsecured debts must be less than $307,675 and secured debts must be less than $922,975. Prior to filing bankruptcy, the debtor must obtain credit counseling through an approved agency.
When the debtor files for chapter 13 relief, they must submit a certificate of credit counseling, debt repayment plan, proof of income and expenses, and copies of the most recent year tax return. A detailed list of debts owed to creditors must be included, along with proof of living expenses including food, shelter, utilities, taxes, transportation and healthcare expenses.
Arranging Chapter 13 payments will stop collection actions against the debtor. However, it does not eliminate debts. As long as payments are made in a timely fashion and disbursed by the Trustee or through payroll deductions, no further action will be taken against the debtor.
If circumstances arise which cause the debtor to be unable to make payments, the Trustee must be notified immediately. In instances where the problem is temporary, the Trustee can elect to reduce or temporarily suspend payments or extend the repayment period.
When the financial setback is determined to be long-term, the bankruptcy court may recommend modification of the plan, discharge the debts on the basis of hardship, dismiss the Chapter 13 case, or convert to Chapter 7 liquidation. If the debtor fails to notify the Trustee to modify their repayment plan, creditors can move forward with collection actions.
Chapter 13 Bankruptcy payments provide individuals with the opportunity to make a fresh start, yet retain their property and assets. When developing the repayment plan it is crucial to arrange affordable payments which the debtor can consistently make in a timely fashion. Otherwise, the effort will be futile; causing the debtor to fail out of bankruptcy and potentially lose their home, automobile and other valuable assets.
Both Mike Selvon & Simon Volkov are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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