Chapter 13 Bankruptcy

If you have to file bankruptcy, Chapter 13 is the best option to consider first. Though creditors never look on bankruptcy as a positive event, a Chapter 13 shows the debtor is at least trying to pay off their debt. This is sometimes referred to as the “wage earner” plan.

The debtor must have verifiable income sufficient to make monthly payments. The court works with all parties involved to create a longer, more manageable payment plan for all debts usually three to five years.

There are several other advantages to Chapter 13 bankruptcy. If a debtor is in danger of losing his home to foreclosure the court can intervene. They devise a plan to make up late payments. The debtor agrees to make all future payments on time. Other secured debts (not including the home) are restructured to lower the monthly payment amount. Third-party debtors, like co-signers, are exempt from payment. Basically Chapter 13 is like a debt consolidation, endorsed by the court and offering protection to the debtor.

Other forms of bankruptcy require the debtor to liquidate or sell certain assets with the proceeds applied to their debt. With Chapter 13 the debtor is allowed to keep assets and property. To be eligible an individual’s unsecured debt can not exceed $307,675 and for secured debt the limit is $922,975. With the changes made in Bankruptcy Code in 2005, a debtor must prove they received credit counseling from an approved counseling agency prior to filing bankruptcy.

Chapter 13 is initiated by filing a petition with a federal court. All financial information must be disclosed. The judge appoints a trustee to work with the debtor and creditors. All creditors are notified and given the opportunity to appear in court. During the confirmation hearing the debtor presents their repayment plan to the judge. If it’s approved, the trustee collects monthly payments for distribution to creditors. If the judge doesn’t approve the plan, the debtor can rework it.

Another change made in 2005 was comparing the debtor’s income with the median income for their state. This determines how long the repayment plan will last. Once the court approves the repayment plan the debtor is bound to comply. After all debt is paid as agreed the bankruptcy is discharged. A bankruptcy can stay on credit reports for up to 10 years. The best thing a creditor can do to prove they will pay future bills on time is to make all payments as agreed after filing bankruptcy.

Margaret Norton, a Personal Life Coach/Writer/Speaker, resides in St. Peters, Mo.

April 12th, 2009 by admin | Posted in Personal | (0)