- Chapter 13 bankruptcy is a way for U.S. citizens to repay large debts they have fallen behind on without giving up secured property. It is not an absolution of the debt, as is the case with Chapter 7, but a structured resettlement monitored by a Trustee appointed by the Bankruptcy Courts. All repayments are made through the Trustee until the Chapter 13 bankruptcy is discharged by the court. Creditors are not allowed to engage in collection activity during the court approved repayment period. Bankruptcies were up 38 percent in 2007 across the U.S. according to statistics released by the Administrative Office of the U.S. Courts.
- Unlike Chapter 7 bankruptcy that stays on credit report for 10 years, a Chapter 13 bankruptcy stays on credit report for 7 years. By showing an interest in repaying debt it may be easier to obtain credit after a Chapter 13 bankruptcy. It also allows you to keep certain secured assets that may be lost in other bankruptcy filings including cars and homes. The Federal and State governments have set guidelines for exemptions from bankruptcy. You can use the Federal guidelines or your states guidelines, but not a combination of both.
- Bankruptcy of any kind is not a "get out of debt free" card. Filing will change the life of the person in ways other than financial. Stress of court dates, repayment plans and living with the stigma of bankruptcy can cause friction for the entire family. Even after the bankruptcy is discharged it will remain on your financial records and may be investigated by prospective future employers.
- A person or family will be able to see some immediate financial relief by filing for Chapter 13 bankruptcy. A repayment plan will be put into effect eventually, but until then the filer can save some money to get a little ahead of the process. Most attorneys have lowered fees for bankruptcy filings which must be paid prior to officially filing the paperwork, and many accept payments. A smart consumer will learn the lesson of not overextending themselves and can get on a track to financial freedom.
- A person filing for Chapter 13 bankruptcy must create an accurate profile of their finances. Providing inaccurate information of any kind to the courts may result in an unreasonable repayment plan, criminal fraud charges can be filed in extreme cases. The repayment plan set forth by the court must be kept current. Failure to do so will result in further court dates and possible seizure of secured property including home foreclosure.
- Court proceedings and hearings can take up to a year or more. Time is given to any creditors so they can get together the necessary proof and paperwork. Bankruptcy courts may also be backed up according to a states economic status. If there are thousands of people filing at a given time, the court dates will be backed up. After all court proceedings are finalized, the repayment plan for a Chapter 13 bankruptcy will be from three to five years as decided by the court.
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