How Chapter 13 Bankruptcy Laws Can Help Struggling Debtors

Chapter 13 bankruptcy laws help individuals, also called debtors, reorganize their debts. Most importantly, chapter bankruptcy laws give struggling debtors time to repay their debts and get creditors off their back. However, according to Moran Law Group, there are some restrictions on people repaying their debts under chapter 13. For instance, debtors can incur new debts without court approval and must kept insurance on assets such as homes current.

Chapter 13 Takes Approximately 3 to 5 Years

Typically, what happens what happens when debtors file chapter 13 is that the U.S. Bankruptcy Court approves a repayment plan tailored to individuals’ particular financial circumstances. The repayment plan indicates the monthly payment amount and the length of years. For instance, an individual may have to pay $300 for 3 years until the debts are completely paid off. The payments are paid to a bankruptcy trustee who then distributes the money to creditors. According to the Moran Law Group, monthly payments start within 30 days of filing for bankruptcy.

Chapter 13 Stops Creditors from Collecting on the Debts

Once the bankruptcy cases are filed, creditors are prohibited from contacting individuals under a provision in the chapter 13 bankruptcy laws called an automatic stay.  In fact, creditors can’t start debt collection activities such as lawsuits, wage garnishments and foreclosure. If creditors have already started these debt collection activities, they must immediately stop. The automatic stay continues until the debts are discharged or the cases are dismissed. Thus, people struggling with debts have breathing room to reorganize their finances.

Filing for Chapter 13 Takes Disposable Income

Chapter 13 is for debtors who can afford to repay creditors. The U.S. Bankruptcy Court actually has a means test to determine if people are eligible to file for chapter 13. If people subtract their monthly income after they’ve paid their debts from their state’s income for their particular household size, then they can determine their eligibility. For the individuals who fail the means test, the can file for chapter 13. However, the people who pass aren’t eligible because they don’t have enough disposable.  

Speak with a Bankruptcy Lawyer If Debts Have Become Overwhelming

A bankruptcy lawyer is for anyone considering bankruptcy. The lawyer will look over people’s finances and determine if they are eligible for chapter 13. More importantly, they can help individuals seek immediately an automatic stay.