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Chapter 13 Bankruptcy Explained


If you're in trouble financially, filing a bankruptcy is a last resort to prevent you from losing everything. The basic rules of bankruptcy are relatively easy to understand. So here is is, Chapter 13 Bankruptcy explained.

Many people who have lost their jobs find themselves unable to fulfill the payments to their creditors. When faced with a great deal of debt, they may feel that they have no choice but to file for relief through a form of bankruptcy.

There are many types of bankruptcy declarations. If you are an individual or sole proprietorship, depending on your circumstances, you may have the choice of electing to declare Chapter 13 bankruptcy or Chapter 7 bankruptcy. Most consumers that file for bankruptcy, file under Chapter 7. Somewhere around 30% of people end up claiming bankruptcy under Chapter 13.  If you have a regular source of income, the Chapter 13 type of bankruptcy filing will probably be the one that best suits your needs.

Chapter 13 bankruptcy differs from Chapter 7 bankruptcy in that it requires that the creation of a debt repayment plan to the creditors. This plan can be as long as five years - the maximum amount of time that a Chapter 13 bankruptcy can extend.

Basic Chapter 13 Bankruptcy Information

Simply put, Chapter 13 is the bankruptcy law that gives an individual three to five years to pay off their debts, with reduced payments. In return for this lenient payment plan, the courts allow the person to keep his assets. When you file Chapter 7 bankruptcy, you wash your hands of all debt, and do not pay any of it back. Chapter 13 requires that you repay all of your debts, but under much more favorable circumstances than you currently are paying.

Before the courts will accept your petition to file for chapter 13 bankruptcy, they will require you get debt management counseling and successfully complete a credit counseling program from a government approved agency. They will also determine if you're eligible to file.

Part of the determination to see if you're eligible to file for Chapter 13 bankruptcy is the amount of money that you make. For instance, if the income you've received during the past 6 months is greater than the U.S. median income and you have the funds to pay $100 a month towards your creditors over the next five years. you may be ineligible to file for Chapter 7. In this case, a Chapter 13 filing may be your only recourse.

Advantages of Filing Chapter 13 Bankruptcy

The advantage for filing under Chapter 13 is that you will be allowed to retain your assets as long as you don't fall behind with your repayments. Another advantage is that some of the credit reporting agencies will remove all records of your Chapter 13 bankruptcy filings after 7 years. Under a Chapter 7 bankruptcy, the agencies will not remove the record of  your bankruptcy filing until 10 years.

Chapter 13 Bankruptcy Rules / Law

Once you've filed Chapter 13, you have to be especially diligent about making your payments. If you miss more than one payment, it's possible that you could have your bankruptcy nullified and be liable for your full debt under the original terms. In some cases, you will be allowed to make up the missed payments, but it's not something that you should count on.

If you fall behind and, due to circumstances, find that you can't make up the payments, you need to talk to your bankruptcy lawyer immediately. In some cases, if the length of your payment plan was less than 5 years, the court will let you extend your agreement to the full 5 years to let you make up the missed payments. It is possible, however, that you could re-file for Chapter 13, if you're unable to make all the payments.

If you are collecting unemployment benefits, those monies, as well as those from social security and pensions, are probably exempt from being used to repay your debts. But, to be sure, you should check with your bankruptcy attorney.

Don't file for bankruptcy without talking to a bankruptcy attorney. He can not only tell you if you should file, but he can tell you the best time to file.

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