Chapter 13 Bankruptcy
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Chapter 13 is a very powerful financial tool.
A Chapter 13 is a debt repayment plan that lasts three to five years. All creditors are included in the plan. You can get caught up on late mortgage payments in a Chapter 13 plan. You can also pay off a car at a lower interest rate, reduce the principal in some cases and spread the remaining payments out over five years.
You can get caught up on back taxes and back child support. You can reinstate a drivers license that has been suspended for unpaid tickets. You can also protect property that might be sold in a Chapter 13 by paying the creditors what they would have received from the sale through the Chapter 13 plan.
Overall, Chapter 13 can do more and is more flexible than a Chapter 7. You have to be able to make the payments and if your income is higher than average, making payments in a Chapter 13 may be your only option. Even if you end up paying creditors in a Chapter 13, it is usually a better consolidation and restructuring plan than a non-bankruptcy consolidation.
It has the power of federal law behind it. Creditors can not back out as long as you propose a legally binding plan and stick to it. You can include a lot more kinds of debt in a Chapter 13.
A Chapter 13 starts by filing a petition with the bankruptcy court. The petition includes lists of your property, creditors, income and budget along with other financial details from your past two years. You also file a proposed Chapter 13 plan. In a month you attend a hearing called a meeting of creditors with your attorney.
A trustee is appointed and the trustee conducts the hearing. The trustee also collects a monthly payment from you and divides it among your creditors according to the plan. In some cases, the trustee makes recommendations about how the plan should be changed during the meeting of creditors.
The trustee and creditors can file an objection with the bankruptcy court. Usually the objections are resolved by negotiation but in some cases the matter needs to be argued in front of a bankruptcy judge who makes the final decision whether confirm your plan. After the plan is confirmed, you continue to make payments for three to five years.
Any debt that is not paid in the plan is discharged (unless it is a kind of debt that cannot be discharged like student loans).