How Does Chapter 13 Bankruptcy Work?


If you need relief from your debt but do not qualify for Chapter 7 bankruptcy, you might want to use Chapter 13. Chapter 13 is much different than Chapter 7, though, and you will need to learn how it works before signing the documents. Here is a breakdown of some essential things to know about how Chapter 13 works to help you decide if you want to choose this form of debt relief.

You Create a Repayment Plan

The first thing to know about Chapter 13 is that it requires a repayment plan. When you file, you will work with your bankruptcy attorney on this plan. The plan consists of a schedule that you must follow. It includes a monthly payment amount that you must pay. It also includes a breakdown of where the payment money goes each month. The payment plan lasts for at least three years but might last up to five years.

Your Repayment Plan Covers All the Priority Debts

As you create the repayment plan, your attorney can help you separate your debts by priority debts and nonpriority debts. Your repayment plan must include payments on every priority debt you have. It may or may not include payments to nonpriority debt creditors.

You Make Payments Every Month

Each time you make a payment, you send it to the bankruptcy trustee. The trustee takes this money and pays the creditors according to your schedule. You must not skip any payments, as doing so can jeopardize your case.

You Report Changes to the Trustee

With Chapter 13, you must keep in touch with the trustee throughout your entire plan. Anytime you experience a financial change in your life, you must tell the trustee. For example, if you switch jobs and have a different income, the trustee needs to know. If you encounter an unexpected bill, you must also tell the trustee. Changes in your finances might affect your payment amount.

Your Case Ends

If you continue making the payments for the three- to five-year period, your case will end when you make the last payment. Successfully completing your plan is vital if you want relief from all the debts that you owe.

When you feel overwhelmed with debt that you cannot pay, you can seek help for it. Turning to a bankruptcy attorney is one option, and you can contact a law firm to learn more about both branches.

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Goodbye Bad Debt. Hello Good Life.

Debt is not always your fault. Sometimes something unexpected happens, like job loss or a bad illness, and the bills just pile up faster than you're able to handle. Eventually things settle down and you think your life is back on track again, but you still find yourself unable to pay those sky-high bills. Declaring bankruptcy is usually an option. It can help you move on, not only financially, but mentally. There are several types of bankruptcy that are allowed under U.S. law, and you'll need to meet with a bankruptcy attorney to find out which one you are most likely to qualify for. We share more information about this and related bankruptcy attorney topics on this website, so dig right in and start reading.

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