Chapter 13 is one of the several types of bankruptcy filing in the US that may be known as “debt reorganization.” This may be a better filing choice for people who are demonstrably able to pay back some or most of their debt, and particularly, this bankruptcy filing may better serve the purpose than Chapter 7 filings if you’re attempting to keep property, like homes or cars.
Before filing pay a visit to a court approved credit counselor
Under Chapter 13, before filing, you have to visit a court approved credit counselor, and there you have to disclose information about every debt that is own by you. You also have to provide a list of your monthly expenses, including amounts you must pay on secured debt like mortgages or car payments to the counselor. The money that is left over is designated for the repayment of your other debts and debts are prioritized.
No Creditor can take any action against you
When you have filed chapter 13 then it usually stops any actions that are taken against you by those to whom you owe money. Once that you’ve filed the bankruptcy, most creditors are not able to sue you, or even continue harassing phone calls.
Limitations on amount of debt you posses
However, if your home is in foreclosure and you have failed to file before the foreclosure occurs then you can still lose your home. If you want to use this bankruptcy filing then you’re also limited as to the amount of debt you can possess. In general, in secured debt you must have no more than slightly over $900,000 US Dollars (USD) and in unsecured debt no more than slightly over $300,000 USD. It is must that you have to show that you’re going to be able to repay the debt, and honor any repayment plan that is developed by your credit counselor.
Make your payments to a court appointed or recognized trustee
Once a payment plan has been developed and you have filed chapter 13 with the appropriate court, then you have to make your payments to a court appointed or recognized trustee.
This person metes out your payments to their appropriate sources, which are based on priority, and a commission can be collected by the trustee on the total amount collected, anywhere from 3-10%. It is necessary that you absolutely must strictly abide by the repayment plan and make all payments on time.
If you fail to do so for any reason then it may change your eligibility to have some of your unsecured debts discharged at the end of the plan’s payment period. There are some circumstances in which the court may allow you to covert your Chapter 13 filing to a Chapter 7 filing if you have an emergency financial problem.
You are able to protect co-signers from any obligations
Another advantage that you may get by filing chapter 13 is that you may be able to protect co-signers from any obligations that you have to debtors. Under current bankruptcy rules, for seven years chapter 13 bankruptcy remains on your credit rating, while for ten years chapter 7 stays on your credit report.
Disadvantages of Chapter 13
Disadvantages include that your future wages are reduced by whatever provisions that are present in your payment plan. Sometimes people need to make a fresh start in order to free themselves from most if not all of their debt, even if it means losing a home. If your income isn’t adequate to make repayments then chapter 13 may not be workable. It also burdens you with repayment plans for three to five years, which might be difficult to make.
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