Filing Chapter 13 Bankruptcy
If you are considering filing Chapter 13 bankruptcy, there are many
things you need to familiarize yourself with before you make this very
important decision. Even before you decide to file for bankruptcy, you
must receive credit counseling from a company that the United States
Trustee's office pre-approves. These agencies do charge a fee for the
initial consultation, but if you cannot afford it, they must offer you
the service at a significantly reduced rate. Once you find an agency to
help you with the paperwork, you are required to also pay the bankruptcy
filing fee, which is approximately $275.
Many people are not
familiar with Chapter 13 bankruptcy, and assume that if you are behind
on bills and your credit cards are all maxed out, you can wipe the slate
clean simply by filing for bankruptcy. That is more in line with
Chapter 7 bankruptcy where you can have all your debts cancelled, and
most of your assets and properties need to be turned over to the trustee
of the creditors. You really need to understand the basics of Chapter
13 that we will outline here, before you run to an agency expecting to
wipe away your debts.
In Chapter 13 bankruptcy, you are ordered
to pay back all of the debts or an agreed portion of them, over the next
three to five years. You do get to keep your property which is a huge
plus when filing this way. In the Chapter 7 bankruptcy we discussed
earlier, you get the debts wiped clean, but you lose your property. Many
agencies call the Chapter 13 bankruptcy a "Reorganization Bankruptcy",
because you are allowed to keep your possessions, you are simply moving
and stretching your current debt over a maximum five year paying period.
In time the end result is you will have paid back all the creditors,
while being able to maintain some level of normalcy in your life.
Many
people feel that bankruptcy is a free pass to get out from under, and
start all over again. This is not the case, and the court's do not take
these filings lightly. You must be able to prove to the court that you
are in trouble in the first place, and then you must be able to prove
that you can afford to make the monthly payback payments that you agreed
to with the credit agency. Many courts look at your income and
determine if your pay is to erratic to be able to pay back the debts,
and may deny you the ability to file Chapter 13 bankruptcy.
The
main focus of the Chapter 13 bankruptcy is the repayment plan. You will
be guided on how to structure the plan in a way so you can afford to
make the payments over a three to five year plan. Your credit agency
representative will explain to you there are priority debts that need to
be put to the front of the line when paying back debts. These debts,
such as alimony, child support or back taxes, need to be paid first and
paid back in full. You will also need to have your secured debts near
the top of the list. These include car payments or home payments.
Any
income you have left after paying those two components of the plan,
will then go towards your unsecured debts, such as credit card loans and
your doctor bills. These debts are usually not paid back in full, and
many debtors will allow an agreed upon lower settlement amount to wipe
the debt clean. As the bankruptcy approaches the end of the payback
period, and you haven't paid everyone back, the credit agency can modify
or extend the bankruptcy at that point. The final step of the Chapter
13 bankruptcy is called the discharge. This is when you paid everyone
back according to the agreement, and all remaining debts are wiped
clean.
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File chapter 13 bankruptcy