Chapter 13 bankruptcy is referred to as the Wage Earner's Reorganization. It allows the wage earner to use his income to repay his creditors over a specified time period. To accomplish this, the court creates a payment schedule, whereby the wage earner makes scheduled payments to the creditors over a three to five year payment period.
Some courts might not permit a filing of chapter thirteen. Filings depend on whether or not an individual's income is adequate to repay part or all of the debt. Courts must establish certify that the income is stable and not too low. Thus, chapter 13 is not suited for everyone.
Other Limitations & Requirements
There are limits to the total debt a person carries to qualify for filing a chapter thirteen. Total secured debt can't rise above $922,975. Total unsecured debt can't rise above $307,675. Secured debt is backed up by collateral like a home or a car. Unsecured debt consists of signature loans, medical bills, balances on credit cards etc.
Before proceeding with a chapter 13 filing, all inquirers are required to take a class on personal financial management. This credit counseling course has to be sanctioned by the court trustee. And there is a fee associated with this course. (This fee might be waved in some cases.)
The court determines how much of your debt you must repay. You, then, start making those payments within 30 days after filing. These payments are ordinarily made to the bankruptcy trustee. And the trustee forwards your payments on to your creditors. The court might require these monthly payments be automatically deducted from your pay check and mailed to the trustee. 3%-10% of each monthly payment is paid to the trustee as their commission. It is necessary that these monthly payments be paid on time.
Under chapter thirteen, there are some debts that should be paid in full. This include child support, some tax obligations and alimony. These debts are non-dischargeable and must be paid one-hundred percent.
Bankruptcy law is a federal law; but, there are state laws connected to bankruptcy, so some rules governing bankruptcy depend on the state of residence and filing.
The idea of chapter 13 is to give a person an opportunity for a clean financial start. It protects them from creditors by placing a hold on their assets and debt collections, and provides the court time to work out a legal judgment that is acceptable to all parties.
However, there are consequences of bankruptcy in the form of poor credit and higher interest rates, because bankruptcy shows up on the credit report. Thus, bankruptcy filing should be thought out seriously, and advice should be sought through an attorney.
There are alternatives to chapter 13 bankruptcy. It's important to consider all your options before making a final decision on whether to file for bankruptcy.
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