Chapter 13 bankruptcy will not completely relieve you of all your debt, but it may keep you in your home. A payback plan over a three to five year period will pay a portion of your debt and end all collection activities, including foreclosure.
The alternate term for Chapter 13 bankruptcy, the wage earner's plan, aptly describes the function of this special form of debt relief. Individuals who are overwhelmed by the burden of their debts may be able to file chapter 13 bankruptcy if they have regular income. Unlike the more familiar chapter 7 bankruptcy plan, wherein an individual is completely relieved of his debt, the chapter 13 plan requires some portion to be paid back within a three to five year period. Despite the payback requirement, chapter 13 bankruptcy offers a key advantage that makes it preferable over traditional bankruptcy.
Chapter 13 bankruptcy allows debtors to keep their homes. Unlike chapter 7 bankruptcy wherein debtors forfeit their assets in exchange for a fresh start, debtors filing chapter 13 are able keep those assets. Even if a homeowner has fallen behind in his mortgage payments, chapter 13 bankruptcy can stop foreclosure and roll those past-due payments into the bankruptcy pay back plan.
While chapter 13 bankruptcy allows homeowners to keep their homes, it may not be the best solution for everyone. After the pay back plan is put into place, debtors must be able to keep the subsequent mortgage payments current. Remember that bankruptcy will make refinancing difficult, so it's important that homeowners are able to afford the mortgage payments. For this reason, although chapter 13 will halt foreclosure, it's only appropriate for debtors for whom the majority of their debt burden is consumer credit.
Once proceedings begin, all collection activities, including foreclosure, are put on hold. Before bankruptcy commences, debtors will need to receive credit counseling from an approved service. Debtors will then need to compile a complete list of debts and assets, as well as income and expenses. A petition is filed in the bankruptcy court where the debtors reside. A judge then approves or rejects the petition. Once bankruptcy is approved, a trust is created. The debtor then makes payments to the trust, and a trustee then pays the creditors. Generally, attorney fees are included in the payback plan and deposited into the trust.
Although chapter 13 bankruptcy requires that a portion of the debt be repaid over a period of time, it still offers relief from overwhelming credit card liability. Homeowners who wish to keep their homes and are able to make the mortgage payments would benefit most from chapter 13 bankruptcy. It may take months for the bankruptcy proceedings to conclude, but collections and foreclosure will cease once the petition is filed with the court. Before homeowners decide to pursue chapter 13 bankruptcy, they must determine if they can really afford their mortgage payments. If those payments fall behind during the repayment plan period, homeowners will not be protected from foreclosure. Chapter 13 bankruptcy is the wage earner's plan that protects the American dream of home ownership.
Due to the complex and evolving nature of bankruptcy law, it is suggested that you contact a law firm with plenty of experience in bankruptcy law if you are considering filing for bankruptcy.
