Chapter 13 Bankruptcy Process and Consequences

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While many people today are considering chapter 13 bankruptcy as a solution to their debt and foreclosure problems, it is important to understand the chapter 13 bankruptcy process and consequences. It is quite complicated, and even more so since the reforms of 2005. As a result, it has become more difficult for debtors to qualify for chapter 7 bankruptcy, making chapter 13 their only option. However, for those who want to keep their home, chapter 13 may be the best option anyway.

Chapter 13 Process

Like any bankruptcy today, chapter 13 begins with required credit counseling with an approved agency. an automatic stay, or hold, on all debt collection, repossession, and foreclosure processes. After counseling has been completed, there are a number of steps that a chapter 13 bankruptcy entails:

  • Filing the petition includes paying a filing fee, which is nearly $300. The debtor must also provide a great deal of information about their assets and debts, any priority debts, and the amount of regular income they can use to repay debts under this plan.
  • An automatic stay is placed on all creditor collection, foreclosure, and repossession efforts the moment the petition is filed. This stay lasts until the bankruptcy process is complete or until a creditor petitions for a lift stay on their debt and the court decides to grant it.
  • A bankruptcy trustee is appointed to oversee the process and to help the debtor submit a repayment plan to the court. This plan outlines how the debtor can repay their priority debts, arrearages, and any amount of other debt the court requires them to pay. The plan is generally set to last three or five years, depending on the financial status of the filer.
  • At the end of the repayment plan, some debts will be discharged, but the filer is generally then better able to continue to make regular payments on their remaining debts, including secured debts such as mortgages and vehicle loans.
  • Before dischargeable debts are erased, the debtor must prove they are current on priority debts such as child support and alimony payments.
  • The debtor must also complete a budget counseling course to ensure that they will remain on good financial footing after the bankruptcy

Consequences of Chapter 13 Bankruptcy

Although a chapter 13 bankruptcy often allows debtors to keep their property such as a home or vehicle, there are other consequences that they will suffer. First, they face a damaged credit rating and difficulty obtaining credit for up to ten years. In addition, background checks, credit checks, employment applications, personal licenses, and other situations in which a background check is performed will reveal the bankruptcy, possibly producing extensive difficulties in these areas.

Getting Legal Help with Chapter 13 Bankruptcy

There are other alternatives to bankruptcy, and debtors should consult a bankruptcy expert before taking this important step. A bankruptcy attorney can help explore those options and advise a debtor about which option will provide the greatest benefit with the least negative consequences.