Chapter 13 bankruptcy is much like Chapter 11 only Chapter 13 allows individuals to work out a repayment plan for at least part of their debt. Chapter 13 is usually a repayment plan that covers either three or five years. The debtor will agree to make a determined amount of monthly payment to the bankruptcy court system. The court system will then divide that payment among the creditors that are named in the bankruptcy petition.
There are a number of requirements that must be met before a family or individual can file for Chapter 13. They must ensure that the creditors will receive at least as much as they would receive if the debtor filed Chapter 7.
Chapter 13 allows an individual to reorganize his debts just like Chapter 11 does for a business. The bankruptcy courts will look at the debts that are owed and they will also look at the income to determine a repayment plan. Most of the creditors will agree to accept less than the actual amount owed because they will probably not get the full amount if the debtor defaults.
When you file Chapter 13 you will you will be required to make timely payments to the court system each month. Some people refer to this as a loan consolidation because all of your debts are combined into one monthly payment. This will allow the debtor to maintain possession of their automobile and their home as long as the monthly payments are made.
The Chapter 13 repayment plan can go for up to five years, depending on the amount of debt and the amount of income. Payments must be made each month until the end of the repayment period. During this time the creditors cannot make any attempt to collect the debt and they are not allowed to contact the debtor. The individual gets to keep their property through Chapter 13 and at the end of the repayment period the debts are considered to be free and clear. The creditors can never come back and attempt to collect any portion of the debt.
The advantages to filing Chapter 13 is the fact that you do not have to forfeit your possessions and you will stop any foreclosure attempts. It will also prevent collection attempts against co-signers who are not part of the bankruptcy process.
The disadvantages include a negative report on your credit rating for up to ten years. While you are in the repayment period you cannot apply for any more credit unless you get permission from the bankruptcy courts. Some creditors, however, may look at Chapter 13 as being your way of attempting to reestablish your credit by making timely monthly payments over a period of years.
If you are considering Chapter 13 you should consult with a bankruptcy attorney who can advise you about the proceedings. The attorney will work with the court trustee to contact your creditors to work out a repayment plan. In just three to five years you will be free from your debt and ready to get on with your life.