Chapter 13 Bankruptcy Rules
If you are drowning in secured debt--auto loan, mortgage and the like--and pursued by bill-collecting sharks yet hoping to hang onto the car and house, Chapter 13 bankruptcy could be the lifeboat you need. It gives debtors with steady income at least three years, and sometimes as many as five, to catch up on long-overdue bill payments. Meanwhile, your ride and residence remain free of your creditors' clutches. They cannot continue collection efforts and they may even wind up settling for less than you owe.
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Chapter 13 vs. Chapter 7
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All bankruptcies are not equal. In Chapter 7 (liquidation), a debtor must sell off virtually all assets not protected by explicit exemption, using that money to settle accumulated obligations. So, while Chapter 7 immediately erases your debts, it also wipes out most of your assets. By contrast, in Chapter 13 (reorganization), a wage earner---perhaps beset by illness, natural disaster or some other of life's calamities---promises to repay as much debt as possible in a specified period, under the watchful eye of a court-appointed trustee. In return, creditors must stop beating on the debtor's door and trying to seize everything in sight.
Expert Insight vs. DIY
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As with any legal matter, you ought to consult a lawyer. But, if you're broke, even the $274 fee to file Chapter 13 paperwork could be a struggle. In that case, consider going the "pro se" route, judicial Latin for "do it yourself." The federal courts help simplify the process for a "self-represented" petitioner with an uncommonly easy-to-read government website, http://uscourts.gov/bankruptcycourts/bankruptcybasics.
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Mandatory Counseling
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Even before you file a petition with the courts, you will have counseling help. In fact, it is required. Under a 2005 tightening of U.S. bankruptcy rules, designed to make it tougher to file--especially Chapter 7--anyone seeking debt relief must receive credit counseling from an approved, nonprofit budget and credit counseling agency no more than six months before filing papers. The counseling fee can run from zero in hardship cases to $50 or more for the credit briefing, which only takes an hour or two and can even be accomplished online. Shop around.
Where and What to File
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U.S.bankruptcy courts preside over 90 districts, at least one in every state, and have clerks in most districts. Go to uscourts.gov/courtlinks, where two buttons and a click (plus your ZIP code) will deliver you to the nearest office's website. There you can download the necessary forms and familiarize yourself with any possible local quirks. File your paperwork, including the petition and a complete (bills, income, property, living expenses) financial statement.
What to Expect
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If nothing else, filing your Chapter 13 petition will stop those increasingly demanding phone calls and other collection muscle, including home foreclosure. It will also start the clock on a series of deadlines:
Within 15 days of filing, you must submit a plan for repaying your creditors, most often for less than the total due.
Within 30 days of filing, you must make the first payment to the trustee.
And, 20 to 50 days after filing, you will meet with your creditors. Attendance is mandatory at the creditors meeting, where you will answer, under oath, their questions and the trustee's regarding your finances and your proposed repayments. The federal bankruptcy judge, who is not permitted to attend the creditors meeting, will shortly thereafter convene a hearing on the repayment plan. If approved, it will form the financial framework on which you can finally climb out of debt.
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