Making a Successful Chapter 13 Work for You

bankruptcy

bankruptcy (Photo credit: ruminatrix)

One of the hardest bankruptcies to complete, the Chapter 13 can be your best option for keeping more assets in a bankruptcy filing. The onus of the responsibility for making a successful Chapter 13 work for you falls directly on your shoulders.

A Chapter 13, commonly called a wage earner’s plan, allows you to make a plan to pay back all or a part of your unsecured debts over a 3 or 5 year time frame. The length of the plan is determined whether you fall under the median income for a family of your size in the region of where you live.

Here are some things you might want to read about if you are planning to file a successful Chapter 13 type of bankruptcy:

  • You propose the payback plan in a Chapter 13, and the plan should be based on your monthly disposable income. Your plan has to be confirmed at a confirmation hearing held by the bankruptcy court before you begin payments. Your creditors can challenge the plan at the confirmation hearing if they feel it is not realistic.

  • Once confirmed by the bankruptcy court, the provisions of a confirmed plan bind the debtor and each creditor by bankruptcy law. (11 U.S.C. 1327)

  • After your plan is confirmed, you must make either make direct or payroll deduction payments to the trustee on a monthly basis. This will require you to live on a prolonged fixed budget over a period of time, and to succeed, you must be willing to be disciplined enough to make timely payments.

  • You cannot incur new debt during your pay back period without the consent of the bankruptcy court. Additional debt can compromise your ability to meet your plan commitments.

  • If you fail to make payments to the trustee in a timely manner, your Chapter 13 can be dismissed or converted into a Chapter 7 bankruptcy.

  • In addition to making your monthly payback payments to the bankruptcy trustee, for any secured assets you want to keep during the bankruptcy process, you must make timely payments on those assets as well. Any arrears on secured assets must be either paid in full at the beginning of your plan or built into your monthly payment plan.

  • Any post-filing domestic support obligations, student loans, and tax liabilities must be paid during the payment plan, unless special permission is given by the bankruptcy court for the debtor to suspend payments until the bankruptcy is over.

Almost two thirds of Chapter 13 bankruptcies fail. The reason many are dismissed is because they are converted to a Chapter 7, but others are dismissed because the filing debtors get behind on their payments. Many fail to complete a Chapter 13 because of a job loss.

The successful Chapter 13 filers are those who can learn how to live on a tight budget for a period of time and who are determined to do so. You are the only one who can make a Chapter 13 work for you. The bankruptcy lawyer you choose to help you during the bankruptcy process can also play an important role in determining whether or not you will have a successful Chapter 13.

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