How Chapter 13 Bankruptcy Works
A Chapter 13 bankruptcy helps you pay off excessive debts, as long as you earn a regular income. Chapter 13 requires that you make monthly payments to the court over a period of three or five years in order to repay your debts. Before you file a Chapter 13, it is important to understand how the process works.
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Qualification
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In order to qualify for a Chapter 13 Bankruptcy, your total debt to unsecured creditors must be less than $360,475, and your total secured debt cannot be more than $1,081,400. Unsecured debts are credit cards, medical bills or personal loans, while secured debts are those that have collateral, such as a car or a house. In addition, you must not have filed a bankruptcy petition within the past six months.
Protections
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When you file a Chapter 13, the court imposes an "automatic stay" on anyone who is trying to collect from you. This means that collectors and creditors must stop calling you when the petition is entered in the court system. In addition, a Chapter 13 filing stops a foreclosure as long as your home has not been sold before your petition is filed.
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Petition
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The Chapter 13 petition is the set of official documents that you (or your attorney) file with the bankruptcy court. Your petition includes a list of all creditors and the amounts you owe; a disclosure of your income; any property you own, such as houses, cars, land or other vehicles and a listing of your monthly living costs. Your petition also includes a repayment plan that details the monthly payments you will make in order to satisfy your debts. The court charges a filing and administrative fee for the petition.
Creditor Meeting
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Approximately 20 to 60 days after you file the petition, the court holds a meeting attended by any of the people to whom you owe money. At this meeting these creditors can ask you questions regarding your situation and the payment plan.
Confirmation Hearing
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About 45 days after the creditor meeting, you will attend a hearing in which the trustee, or bankruptcy judge, will approve or decline the payment plan. Your creditors are also invited to this hearing so that they can raise any objections to the plan. If the trustee or judge declines the plan, he will ask that it be changed in order to meet approval.
Payments
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You must start making the payments established by your plan within 30 days of its filing, even if it is not yet approved. After it is approved, you will make monthly payments to the court for the specified time period.
Discharge
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If you make all the payments on time and do not owe any back child support at the end of the payment period, the court will discharge your case. This means that you are no longer responsible for the debts listed in the petition.
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