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Chapter 13 Overview

Posted by attorney Keith Carr

CHAPTER 13 DEBT CONSOLIDATION In Chapter 13, a consumer debtor completes a plan to repay his or her creditors. The plan in Chapter 13 is sometimes referred to as a "Wage Earner Plan." The debtor proposes a plan of repayment to his creditors over a period of between three to five years. The plan will provide for regular monthly payments to be administered by a Chapter 13 Trustee.

The Chapter 13 Trustee will take debtor's monthly payment and disburse that money to the debtor's creditors according to whether the creditors are secured (auto loan), unsecured (credit card), or priority (taxes) creditors. The court must approve of the Chapter 13 plan and there are strict requirements for approval. Some of the new changes in the bankruptcy law affect debtors filing for Chapter 13 as follows: You can save your car by filing for Chapter 13 Bankruptcy. This is true even if the car has been repossessed (but not sold). Under the old bankruptcy law, debtors were allowed to pay car financing companies the value of the vehicle (which often would be lower than the full debt owed to the creditor).

Under the new law, this is not allowed for a car, purchased within about 2.5 years of the filing of the bankruptcy. Furthermore, the new law provides that a car finance company's lien cannot be released until that it is paid or the plan is completed. If you are delinquent in your mortgage payments, you can still save your home by filing for Chapter 13 Bankruptcy. Assuming that your mortgage company has initiated foreclosure, the filing of the Chapter 13 automatically stops the foreclosure process from proceeding. Once your Chapter 13 case is filed, you are allowed to cure or "make-up" the payments that you are behind over a period of three to five years under the provisions of your Chapter 13 plan. You may also refinance or sell your home during the course of your Chapter 13. You may decide that you would rather surrender your home. If so, you may accomplish this in either Chapter 13 or Chapter 7 (liquidation) Bankruptcy. Chapter 13 Discharge. When a debtor has completed all payments called for by his or her Chapter 13 plan, then the debtor obtains a Chapter 13 discharge, which is similar to the Chapter 7 discharge mentioned above.

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