If a consumer is in debt and desires to pay part of it, they may seek help through chapter 13. It will allow them to seek a 3-5 year repayment plan from the court. Debts that may be discharged through this arrangement are personal loans, medical bills, and credit card debts. But the plan must be approved by the court. The court will forbid creditors from further debt collection. It gives the debtor reprieve from letters and having to deal with a barrage of phone calls from collection agencies as explained by a helpful philadelphia bankruptcy lawyer.
Chapter 13 is a payment plan and does not require the debtor to start fresh as it is in other cases of bankruptcy. Debts like student loans, alimony, child support, taxes or unsecured loans cannot be discharged by Chapter 13. Such debts should be paid in full. Also, car and house loans should be updated during the repayment period.
Thus, chapter 13 should only be treated as a repayment schedule. It intends to reorganize and prioritize debts based on the debtor’s income. If by the end of the day some of the unsecured debts are not paid, they will be discharged.
Chapter 13 bankruptcy does not focus much on the elimination of debts. Instead, it is concerned with reorganizing the debtor’s finances. So, the debtor must seek such orders by filing a bankruptcy case in a court of law. If the orders are granted, the debtor will be required to make installment payments to a trustee for a given period. Typically, the duration will be between thirty and sixty months. It is upon the trustee to distribute the proceeds to creditors that have filed claims. The court must verify the claims and validate them.
Chapter 13 requires the debtor to make monthly payments as agreed. In return, they get discharged from the unsecured debt like credit card bills. They will be relieved from the obligation of paying certain debts at the end of the period.
When it is necessary to file chapter 13
A debtor may file chapter 13 plans if they have some income that can allow them to pay some of the debts. In such a case, the debtor may not go through the scrutiny as it is the case with chapter 7. Here are some of the reasons that may make a debtor consider chapter13.
- It protects debtors from punitive cases. It can happen even if they make more money that qualifies them for chapter 7 bankruptcy cases.
- It gives the debtor more time to pay back the debts owed on secured loans such as loans, cars, and houses.
- It allows them a 3-5 year period to pay the debt.
- It allows the debtor to set up new terms of paying the car loan which is more than two and a half years.
- When they want to protect the cosigner from being forced to pay the loan.
- When the debtor is interested in managing students loan effectively
- When they want to protect assets or property that they may need to surrender if they sort chapter 7 bankruptcy
- When they do not have enough funds to pay for the bankruptcy attorney fee. The fee may be included in chapter 13 payment plan
- When looking for a process that is easy to follow but which requires sacrifices, perseverance, and commitment.