- Chapter 13 bankruptcy is available to individuals, not corporations or partnerships, whose unsecured debt such as credit cards is less than $360,475 and whose secured debts do not exceed $1,081,400, as of 2010. In addition, within 180 days prior to filing for bankruptcy, individuals are required to complete an approved credit counseling course.
- When filing for Chapter 13 bankruptcy the debtor must include records of all of her debts and assets. A trustee will be appointed to the case. According to United States courts, the debtor and trustee create and submit to the court a payment plan to pay off debts within 15 days of filing. Priority debts, such as taxes, must be paid in full. Secured debts will be paid off next and the creditor must receive the value of the goods purchased with the debt. Unsecured debts are paid last. The debtor must put all of her disposable income toward paying off the debts and the plan must be three to five years in length. The debtor must make a payment to the trustee within 30 days of filing for bankruptcy.
Within 60 days of filing, a creditors' meeting is held and the creditors are permitted to questions the debtor. The court will hold a meeting within 45 days of the creditors' meeting to confirm or modify the payment plan. - Once the debtor has completed the agreed-upon payment plan, eligible debts will be discharged. Ineligible debts include mortgages, child support, taxes and student loans. In some cases, debts may be discharged even if the payment plan was not completed. This is called a hardship discharge. In this case, the inability to complete the payment plan must be out of the control of the debtor and the credit holders must have been paid as much as they would have been paid in a Chapter 7 bankruptcy. Illness or injury may qualify the debtor for a hardship discharge.
- Chapter 13 bankruptcy offers several advantages over Chapter 7 bankruptcy. Chapter 13 bankruptcy is a convenient debt payment plan that allows the debtor to make one payment for all debts. The trustee then distributes the funds. It allows the debtor to avoid foreclosure and keep his home by restructuring mortgage payments. In addition, it may protect other property that would be liquidated under Chapter 7 bankruptcy. Filing bankruptcy will also immediately stop creditor collections activities.
Chapter 13 bankruptcy may stay on your credit report longer than a Chapter 7 bankruptcy. Chapter 7 will stay on your credit report for 10 years. Chapter 13 is on your report for seven years after discharge and may affect your report for 10 to 12 years, depending on your payment plan. In addition, your debts are not discharged until the end of your payment plan. According to bankrate.com, if you fail to make payments on your plan, your bank accounts may be levied to make payments. In addition, the United States Courts state that your bankruptcy may be dismissed and your debts will return in full with the accumulated interest or it may be converted to a Chapter 7 and your assets liquidated. Failure to pay taxes or child support during the time of the payment plan may also cause the case to be dismissed. - A Chapter 13 bankruptcy is public record and will remain on your credit report for seven years after your debts are discharged and has a negative effect on your credit score. A low credit score makes it difficult to obtain credit and loans in the future. According to bankrate.com, you can begin to restore your credit by obtaining a secured credit card that reports to all three credit bureaus. Make timely payments on your new card and any other debts that were not discharged. In addition, request a copy of your credit report to ensure that it is accurate. This will quickly improve the damage done to your credit score by filing bankruptcy.
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