How does Chapter 13 Bankruptcy work?

Chapter 13 bankruptcy is the legal process that allows you to pay back unsecured and secured creditors. The legal process also comes with an automatic stay which stops creditors from garnishing, foreclosing and suing you.

How chapter 13 bankruptcy works is that within your bankruptcy petition is a repayment plan approved by the U.S. Bankruptcy Courts. The repayment plan is specific. So your repayment plan generally lasts for three to five years depending on a variety of factors such as the amount of debts you have.

During the three to five years, you must make monthly payments to a bankruptcy trustee over your chapter 13 bankruptcy. The bankruptcy trustee distributes the money you send to creditors. Generally, priority debts are paid first. Priority creditors include mortgage lenders, property taxes and car dealers. If there is money left over, unsecured creditors such as credit card companies are paid last.

While you’re making your chapter 13 bankruptcy payments, you must keep your payments current. Thus, if have a mortgage or car, you’ll have to make all those payments. Missing those payments or your chapter 13 payments can have consequences such as your bankruptcy petition being dismissed.

If you are considering bankruptcy, it’s best to consult a lawyer who is an expert in chapter 13 bankruptcy. Your bankruptcy lawyer will meet with you and explain the entire process. For instance, credit counseling must be completed before and after your bankruptcy petition is filed. The lawyer will also make sure you’re eligible to file.