Paying Your Debt Using a Chapter 13 Bankruptcy

It's possible to actually establish a court monitored debt repayment plan using a chapter 13 bankruptcy. This kind of bankruptcy allows you to still get the relief you need from collection calls, garnishments and lawsuits. In effect, you ask the court to intervene on your behalf with your creditors to get some breathing room. The repayment plan usually calls for listed debts to be repaid within 5 years.

Of course, the US bankruptcy court can do what it wants and in some situations a longer period of time is allowed. The measure used is the relationship of your current monthly income to your expenses. There are standard formulas used in order to determine eligibility for this type of bankruptcy. Any individual is permitted to file a chapter 13 as long as the secured and unsecured debts are under a certain amount. Your bankruptcy attorney will review all of your debts and categorize them in order to determine if you meet eligibility requirements.

When you file a chapter 13, you go through many of the same steps you would go through if filing a chapter 7. You have to complete a series of financial schedules which list your income and expenses. You also must complete a credit counselling course which teaches about budgeting and managing money. A court appointed trustee will review your documents and require you to appear before him or her and answer questions about your financial documents.

When you complete your financial information, you will have to reveal "all" in essence. You have to list your creditors, all of your income, any property you own and your monthly expenses. When the bankruptcy attorney files the bankruptcy, a stay is issued to creditors and that is when you will feel the first relief from collection efforts. You will have to work with your attorney to develop a reasonable repayment plan that is then submitted to the courts.

In a chapter 13 bankruptcy your various debt categories are handled differently. The court will establish the priority claims which must be paid first. Then the court will determine how debt secured with collateral will be handled in the repayment plan. Finally, the unsecured debts are included in the payment plan, but they do not have to be repaid within the 5 years. The point of the repayment plan is that you pay all excess income over reasonable living expenses to your debtors.

There are advantages to using a chapter 13 bankruptcy instead of a chapter 7. First and foremost, if your house has already gone into foreclosure, the process can be stopped. Back payments due on your house are included in the repayment plan which gives you time to catch up. In a chapter 13 bankruptcy it is also possible to lower your payments on your secured debts. There are many other advantages too, and your attorney will review them with you while deciding if a chapter 13 bankruptcy is the right choice in your situation.