Chapter 13 Bankruptcy has some limits that are subject to being changed by Congress, so one should always consult with a specialist at the time Bankruptcy may be sought as a remedy before reaching a decision to do so. Chapter 13 is available to wage earners, small business owners and professionals, but may not include everyone.
What Happens When I File?
As soon as a person files a Petition for Bankruptcy in Federal Court the following protections are afforded:
- Your creditors cannot contact your employers in any way;
- Late charges, service charges, and often interest charges are halted;
- Any legal action brought against you will be halted, so long as it relates to your debts;
- Any new legal action related to your debts being brought is prohibited;
- All collection action, including phone calls, letters, and any other attempts to collect must be stopped;
- Your wages cannot be garnished, and any garnishments in effect must be terminated;
- Any repossessions in progress must be stopped; and
- All action to collect against co-signers, guarantors or co-debtors must be stopped, although your bankruptcy may not wipe out the debt as to them.
How Does the Court Procedure Work After Filing?
The court appoints a trustee to manage the debt process throughout the court proceeding. The trustee is an independent professional and his/her job is to create a plan, after receiving input from you and your attorney, that will enable you to repay your creditors over a three to five year period.
If your income will not cover what your obligations will be over that three to five year period, the trustee will arrange to reduce some or all of your debts to a manageable level that can be met over such a period given your income level. Interestingly, once that portion of each debt is paid, that debt is considered to be paid in full, even if this is only a small fraction of the total obligations owed.
Once the trustee and the party and their attorney approve the plan, it is submitted to the judge who approves the plan. In making this determination, the judge analyzes your income to debt picture. Based on your expected income, the judge will approve the payments he believes will fulfill your obligations to the best of your ability.
Specifically, What Debts Can I Receive Help With? Most unsecured creditors, such as credit card companies, financing companies, department stores and similar creditors must accept the Bankruptcy Courtís determination, regardless of their personal feelings of whether it is enough money. If your house has been foreclosed upon, all back payments can be lumped together and spread out over a period of several years. You must also make your current house payments under the mortgage. If you do both, the house cannot be foreclosed upon.
If you owe back taxes, the Court can grant relief from the obligation to pay them immediately, provided they are paid over a period of several years as agreed to in the Court.
What Happens After the Plan is Approved?
The trustee requires you to pay a single lump sum to his/her office every month. The trustee then pays all of the creditors directly. This ensures that the trustee monitors your performance and that you keep up with your obligations. You might consider arranging for your employer to make a single deduction from your paycheck to pay the trustee, to avoid the situation of late payments.
What Happens If I Cannot Pay During the Repayment Period?
The Federal Bankruptcy Code contemplates problems in repaying debt after a Plan has been approved and implemented. There are procedures in the law that allow you to amend the Plan, but there are strict statutory requirements with which you must comply in order to obtain relief.
Also, there is a possibility that you may be able to apply for complete relief from your debts and discharge all of your obligations by filing for Chapter 7 Bankruptcy. If you need assistance after a Plan has been approved and implemented, or if you think you may need to apply for Chapter 7 relief, you should seriously discuss your options with a Bankruptcy specialist.