Bankruptcy: Chapter 13

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The two primary types of bankruptcy available to individual debtors are Chapter 7 and Chapter 13. A Chapter 13 is a type of reorganization bankruptcy. It allows debtors to protect some assets and to catch up on missed payments through a reorganization plan that pays back creditors over a period of time (a 3 to 5 years, depending on your circumstances). This plan is submitted to a bankruptcy judge and if approved, a court-appointed trustee will administer the plan. The trustee collects the funds from the debtor and distributes the funds to creditors.

A Chapter 13 starts when a debtor files a petition with the bankruptcy court, and a Trustee is then appointed to administer the case. Filing the petition will stop most collection actions, including foreclosures, which can be very helpful for debtors.

Between 21 and 50 days after a debtor files a Chapter 13, the Trustee holds a meeting of creditors. During the meeting, the Trustee and creditors can ask questions of the debtor, and the Trustee will determine whether the bankruptcy is being filed fraudulently.

Under a Chapter 13 bankruptcy, debtors propose a repayment plan to make installment payments to their creditors. This payment plan lasts between three and five years. But in order for the plan to work, the debtor must make regular payments to the Trustee. The Trustee will then make payments to the creditors. The creditors may receive less than full payment on their claims, depending on the plan. If the debtor can’t make the payments under the plan, the court may dismiss the case, or convert it to a Chapter 7 bankruptcy, which is a discharge.

A Chapter 13 can only be filed by individuals with sufficient income to pay the creditors. There are also limits on the amount of debt an individual filing a Chapter 13 can have. Upon completion of all the payments under the plan, the debtor will receive a Chapter 13 discharge. The discharge will release the debtor from all debts provided for by the plan. There are several types of debts which aren’t included, such as alimony and child support, taxes, mortgages, and student loans.

Are you considering a Chapter 13 bankruptcy? If so, contact our Helena, Montana bankruptcy attorneys. They will help determine which options are right for you.