An Overview of Chapter 13 Bankruptcy
Chapter 13 bankruptcy, sometimes called reorganization bankruptcy, is also known as restructuring where you file a repayment plan with the bankruptcy court proposing how you will repay your default s to your creditors.
Chapter 13: Monthly payments are made to the Bankruptcy Trustee, who disperses the collected amount to the debtor’s, creditors according to a repayment plan submitted by the debtor. The debtor must propose a payment plan based upon his or her excess monthly income, and payments must continue regularly for 36 months (sometimes 60 months.). When the plan has completed, any remaining debts are then discharged.
Relief under Chapter 13: This is available only to individuals with regular income whose outstanding debts do not exceed prescribed limits. If you’re an individual or a sole proprietor, you are allowed to file for a Chapter 13 bankruptcy to repay all or part of your debts. Under this chapter, you can propose a repayment plan in which you pay your creditors over three to five years. If your monthly income is less than the state’s median income, your plan will be for three years unless the court finds “just cause” to extend the plan for a longer period. If your monthly income is greater than your state’s median income, the plan must generally be for five years. A plan cannot exceed the five-year limitation.
How Does Chapter 13 Bankruptcy Work: While the defaulters are allowed to keep all of their property, the court endorses a new interest-free plan for repayment A written plan is created giving details of all the transactions that will occur, and the period of the same. The repayment must begin within thirty to forty-five days after the case has started. The transitory stage of paying a trustee who then pays a creditor. Although, in some cases people may involve a trustee who would take care of disbursing money to the creditors as per the plan. Also, as per the law the creditors must strictly adhere the repayment plan approved by the court and are in fact prohibited to collect any claims from the debtor. Your attorney will prepare new repayment plan to best suit your situation.
The one advantage of chapter 13 Bankruptcy is the full discharge option, for example, if a debtor manages to complete all necessary payments in the plan, he/she is given a full plan discharge. Although there are a few exceptions. Yet another advantage of the Chapter 13 filing is that a repayment can be created even if creditors disagree with it, as long as it is approved by the Court. Although, in all integrity the court allows creditors also to file an objection, in case they may have any.
How a Chapter 13 Case Ends:Once you complete your repayment plan, all outstanding debts that are suitable for discharge will be wiped out. Before you can receive a discharge, you must show the court that you are current on your child support and/or alimony commitments and that you have completed a budget counseling course with an agency approved by the United States Trustee. (This requirement is separate from the mandatory credit counseling that you must undergo before filing for bankruptcy).
Chapter 13 bankruptcy isn’t for everyone. Because Chapter 13 requires you to use your income to repay some or all of your debt, you’ll have to prove to the court that you can afford to meet your payment obligations. If your income is irregular or too low, the court might not allow you to file for Chapter 13.