Bankruptcy can be confusing and intimidating. Here are answers to the most frequently asked questions about a Chapter 13 bankruptcy.
1. Chapter 13 Bankruptcy Explained
Chapter 13 bankruptcy enables an individual to pay back all or some of their debts under the protection and oversight of the bankruptcy court. A Chapter 13, at its most simple definition, is a court protected repayment strategy. No fees and interest can accrue during the repayment period. The debtor must make regular payments to the Chapter 13 trustee, who then pays lenders in accordance with the Chapter 13 plan. Once the Chapter 13 plan is finished, the debtor is released from obligation for the balance of their dischargeable debts.
2. When is a Chapter 13 Preferable to a Chapter 7?
Chapter 13 is generally preferable when the debtor:
- Does not pass the means test for a Chapter 7 bankruptcy, or otherwise does not qualify
- Has a great deal of secured debt that can’t be discharged under a Chapter 7 bankruptcy anyways
- Has significant assets that they do not wish to be liquidated to pay back debts
3. What Is a Chapter 13 Plan?
A Chapter 13 plan dictates the amount of money the debtor will pay the duration of the plan to the Chapter 13 trustee. It also dictates how creditors will be paid, e.g. in what order. Generally, secured debt like tax or student loan debt has more priority over unsecured debts, like credit card debts.
4. Who Is a Bankruptcy Trustee?
The trustee’s responsibilities are to collect payment from the debtor, make payments to lenders, and ensure the plan is followed until all payment obligations are met and the case is closed.
5. Do All Debts Need to Be Repaid in Full Under Chapter 13?
No. Many lenders will merely receive pennies on the dollar to the amount they may be owed, although some priority debts have to be paid in full.
6. What Immediate Protection Does Chapter 13 Afford Debtors?
The automatic stay is similar to a court ordered restraining order against lenders. All suits, attachments, garnishments, foreclosures, and other actions by creditors against the debtor’s property or the debtor must instantly cease once a Chapter 13 bankruptcy is filed. This provides a debtor with instant relief from collection efforts.
7. What Effect Does Filing a Chapter 13 Have on a Debtor’s Credit Rating?
By filing a Chapter 13, a credit score will probably be worsened in the short run, but it will allow the debtor to rebuild his or her credit score in a way that continuing to struggle with debt would not.
Call the Law Office of Howard Tagg to learn more about whether or not a Chapter 13 bankruptcy is right for you at (903) 730-6366.