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Filing Chapter 13


Chapter 13 is a sort of a state run debt consolidation plan.  When filing Chapter 13, the court assigns you a trustee who is responsible for making payments to your creditors.

Chapter 13 bankruptcy is designed for those who are having debt problems, but who are still holding regular employment. In fact, the common name for this type of bankruptcy is "wage earner's plan". When a person files for Chapter 7 bankruptcy, his assets are liquidated and the proceeds used to satisfy the claims of his creditors. Under Chapter 13, however,  the person is allowed to keep his possessions while he makes payments to his creditors. The debtor is given either 3 or 5 years to make good on the debts. During this three or five year period, the creditor is not allowed to contact the debtor with collection calls or notices.

Another advantage of filing Chapter 13 is that it can save your home from possible foreclosure. If you filing is successful, the foreclosure proceedings can be halted. The court will work out a payment plan which you will be obligated to follow if you want to prevent foreclosure proceedings from starting up again. If you are behind in your mortgage, the payment plan can give you a chance to catch up with past due payments. If you fall behind again, however, the foreclosure will probably be allowed to proceed.

Another benefit of filing Chapter 13 is that it can allow you to spread many of your secured debts over the time span of your Chapter 13 plan.  For example, if you own a vacation cabin on which you owe $12,000 over the next months, but you know that you can't make the payments, you may file for a Chapter 13 three year bankruptcy plan. This plan will spread that $12,000 over the three years thus easing the monthly burden that you're under and allowing you to keep that property - as long as you don't fall behind in your payments.

Chapter 13 is like a consolidation loan in that the court assigns a Chapter 13 trustee to the debtor. The debtor makes payments to the trustee under the terms of the bankruptcy agreement. The trustee then distributes the monies to the appropriate creditors. During the period of the agreement, the creditors will have no contact with you as they will receive payments from the trustee.

Corporations cannot file for Chapter 13. In order to file under this chapter you have to be an individual or an unincorporated business. There are also time limits as to when you can file to prevent persons from filing bankrupt in consecutive periods.

As with any other bankruptcy filing, the bank will require income statements, a list of all expenses, an accounting of all your debts, and any other financial information which may have a bearing on your case.

The great benefit of filing Chapter 13 bankruptcy is that unlike other forms of bankruptcy, Chapter 13 will allow you to keep your property as you pay down your debt.

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