A Chapter 13 bankruptcy filing is a type of bankruptcy where the courts will order a repayment plan for a specified duration to creditors, often allowing the debtor to settle their debts for less than what is owed for the full balance. This type of bankruptcy will have damaging effects to credit, but they won't be as long lasting as the effects of a Chapter 7 bankruptcy.
Home Ownership
As opposed to a Chapter 7 bankruptcy filing, individuals filing a Chapter 13 bankruptcy can keep homes from foreclosure even if they are behind on the payments. A Chapter 13 bankruptcy allows the debtor to place all secured and unsecured debt into a repayment plan. In many cases a Chapter 7 bankruptcy will result in an instant foreclosure since it breaches the agreement with the lender, whereas a Chapter 13 bankruptcy filing will secure the debt and does not breach the agreement for the debtor's mortgage. But he could face foreclosure if he fails to abide by the plan approved by the courts.
Debts
When filing for a Chapter 13 repayment plan the courts will review the debtor's income, expenses and total debt load. It is advisable to place all debts into the bankruptcy filing, but there are some debts that are not eligible. The debts that cannot be placed on a bankruptcy payment plan are back child-support payments, federal student loans or taxes owed to the IRS. The list of liabilities to creditors should be complete upon filing, and the debtor is responsible for the accuracy and currency of the information. Debts not placed on the plan at the time of filing will not be included in the bankruptcy protection.
Time Frame
Upon filing, all creditors listed will be notified of the court date. Within 20 to 50 days of filing a Chapter 13 petition, a debtor will have a court-appointed trustee represent their case to their creditors. The debtor must be present for this proceeding to answer questions from the court and creditors. Creditors who fail to have representation at this hearing will not be included the bankruptcy and will have debts automatically discharged by the courts, meaning that the debtor is no longer liable to repay them. A debtor who fails to appear for this proceeding will have her bankruptcy case dismissed. It is during this proceeding that the repayment plan will be agreed upon.
Beginning of Payments
Once 30 days have passed after the original Chapter 13 bankruptcy petition, the debtor is obligated to begin making payments to the creditors that are included in the plan, regardless of whether the plan has been officially approved. Failure to do so could jeopardize the bankruptcy proceeding. Payments are completed via a payroll deduction and overseen by a court-appointed trustee.
Duration
Most Chapter 13 bankruptcy repayment plans last between three and five years, depending on the debt load. The more debt that he has incurred, the longer the duration of the plan. During this time, the debtor will live on a very fixed income since the trustee appointed by the court system will oversee all payments being made through direct payroll deduction to each creditor. Once all of the debts have been cleared and settled, the courts will automatically issue a discharge of the bankruptcy and send it to the debtor and to all creditors involved, concluding the bankruptcy and allowing the debtor to start rebuilding his credit.
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