Chapter 13 bankruptcy is know as the Wage Earner's Reorganization. It allows the wage earner to use his income to pay his creditors over a specified period of time. To accomplish this, the court sets up a payment schedule whereby the wage earner makes timely payments to the creditors over a three to five year payment period.
Some courts may not allow a filing of chapter 13. Filings, depend on whether or not a person's income is sufficient to repay some or all the debt. Courts must establish that the income is steady and not too low. Thus, chapter 13 is not suited for everyone.
Also, there is a limit to the amount of debt a person carries to qualify for filing a chapter 13. Total secured debt must not exceed $922,975. Total unsecured debt must not be more than $307,675. Secured debt is backed up with collateral such as a home or a car. Unsecured debt includes balances on credit cards, signature loans, medical bills, etc.
Before proceeding with a chapter 13 filing, all applicants are required to complete a course in personal financial management. This credit counseling course has to be approved by the court trustee. And there is a fee with this course. (This fee can be waved in some instances.)
The court determine how much of your debt you will repay. You, then, begin making those payments within thirty days after filing. These payments are usually made to the bankruptcy trustee. And the trustee forwards your payments on to your creditors. The court may require these monthly payments be automatically deducted from your wages and sent to the trustee. Three percent to ten percent of each monthly payment is collected by the trustee as their commission. It is imperative that these monthly payments be paid on time.
Under chapter 13, there are certain debts that must be paid in full. These include child support, alimony and some tax obligations. These debts are non-dischargeable and must be paid one-hundred percent.
Bankruptcy law is a federal law; however, there are state laws pertaining to bankruptcy, so specific rules governing bankruptcy depends on the state of residence and filing.
The purpose of chapter 13 is to give a person a chance for a fresh financial start. It protects them from creditors by placing a hold on their assets and debt collections, and provides the court time to work out a legal judgment that is accepted by all parties.
However, there are consequences of bankruptcy in the form of poor credit and having to pay higher interest rates because bankruptcy shows up on the credit report. Thus, bankruptcy filing should be thought out seriously, and advice should be sought through an attorney.
There are alternatives to bankruptcy. It's important to weigh your options before making a final decision on whether to file a bankruptcy.
