Understanding Chapter 13 Bankruptcy

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With tougher bankruptcy laws now on the book, more people are forced into filing chapter 13 rather than Chapter 7 bankruptcy. Chapter 13 is not as lenient as Chapter 7, and it does not discharge all of your debts. It does, however, make it easier to handle the debt you have, so if you struggle with meeting your obligations, consider this option.

The first step in filing Chapter 13 bankruptcy is filing a two-page form called a Petition. I must be signed by your debtors and given to the court. This starts the automatic stay, which means that creditors can no longer demand that you pay your debt or start repossessing your property. You are then assigned a docket number, which officially stops most foreclosures and other creditor attempts to get money from you.

Between seven and ten days after you file this Petition you will have to submit a Matrix. The Matrix is a plan that shows how you are going to reorganize your assets and debts under bankruptcy so that you can start repaying your debts. You may have to amend this document if your income changes or your debt changes.

You will also be assigned a Trustee as part of the process. The Trustee handles all aspects of your case, working with you and your creditors to come to a mutually beneficial agreement. You will attend a 341 meeting one to three months after you start the process. At this meeting, you are questioned about the state of your finances to determine whether or not you are truly in need of bankruptcy help. It is also the time that your repayment plan is agreed to, and it probably will be if you are agreeing to pay around 50 cents on the dollar for your debts.

After the 341 meeting, you will start working on your repayment plan. Unsecured debts are paid through the Trustee, who will then pay back your creditors. These are typically credit cards and non-mortgage or non-car loans. Secured debts, which are debts that have a large asset behind them, are paid outside of the bankruptcy proceedings as you normally would. Typically, you pay half of what the creditors claim for your unsecured debts over a period of up to 60 months.

So what are the benefits of filing Chapter 13? By cutting your debt in half, you give yourself more of a chance to actually get out of debt. Also, at the beginning of the process, you are given a little bit of breathing room, because your creditors cannot act against you. Basically, Chapter 13 bankruptcy gives you the chance to find a way that you can realistically pay what you owe, while still being able to keep your personal property.