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Chapter 13 is especially helpful for individuals who have significant equity in a home or other property they want to keep post-bankruptcy. This form of bankruptcy is designed for individuals with a regular income who want to pay off their debts but are unable to do so according to the terms demanded by their creditors. It can be a preferable alternative to Chapter 7 bankruptcy, since debtors are not required to sell their assets for the benefit of creditors and need not make full repayment of their debts.
Many families file Chapter 13 bankruptcy for the sole purpose of stopping foreclosure proceedings in their tracks. As soon as the bankruptcy petition is filed, the court can issue an automatic stay that blocks foreclosure, regardless of how far it has progressed.
Chapter 13 bankruptcy process
To file for Chapter 13, debtors must first take a credit counseling course. They then petition the court, providing detailed statements of their income, assets and debts. They must submit this same information to the bankruptcy trustee, along with proof of their financial status, typically in the form of paycheck stubs, tax returns and other asset- and debt-related documents.
The attorneys at the Bankruptcy Law Office can propose to the bankruptcy trustee a repayment plan that allows you to pay a portion of your debts in manageable amounts over a period of three to five years, during which creditors are generally barred from collection efforts.
Towards the end of the repayment period, debtors must complete a more intensive personal finance education course. After the repayment period ends, much of the remaining debt may be discharged.
Advantages of Chapter 13 bankruptcy
For many wage-earning homeowners, Chapter 13 bankruptcy is an attractive option for several reasons:
- Foreclosure prevention — Filing a Chapter 13 bankruptcy can temporarily stop foreclosure proceedings and allow you to catch up on past-due mortgage payments.
- Debt reorganization — You can reschedule secured debts — other than a mortgage for a primary residence — and extend them over the life of the Chapter 13 plan, which may lower your monthly payments.
- Credit restoration — If you have a regular income, it is an opportunity for you to adjust your relationship with creditors while retaining your property.
- Wide discharge of debts — You can discharge a broader variety of debts under Chapter 13 than you could under Chapter 7.
You have the protection of the bankruptcy court throughout during the period in which you are repaying your debts according to the Chapter 13 plan.
Rights of the debtor
During the Chapter 13 process, creditors are generally prohibited from taking any action to collect their debts or seize your property. They are also barred from collecting from co-debtors. In addition, the federal Fair Debt Collection Practices Act shields debtors from harassment, abuse and threats. If a collection agent violates the FDCPA, the debtor may sue for money damages.
Rights of creditors
The Chapter 13 bankruptcy process sets limits on what creditors can do to collect their debts. They have the right to give input about debtors’ repayment plans, to object to plans they believe are unfair and to propose plan changes. For these purposes, a meeting of the creditors is scheduled by the court, which is typically the only court appearance at which the debtor must appear. Frequently, creditors decline to appear in person, preferring to carry on discussions regarding the repayment plan outside of court.
Our lawyers will safeguard you through the Chapter 13 bankruptcy filing process from start to finish. You can learn more about Chapter 13 at our Bankruptcy FAQ page.