If facing foreclosure or repossession, a Chapter 13 bankruptcy filing may be the right option for you

Filing for bankruptcy is an option for some people who are simply buried in debt. An individual, couple or company may file for bankruptcy due to a change in income or a loss of revenue. Certain circumstances may force an entity into bankruptcy, like medical bills or a change in lifestyle, such as a divorce. For individuals and couples, the common options for bankruptcy are filing a Chapter 7 or Chapter 13.

What is Chapter 13?

If facing foreclosure due to some missed mortgage payments, or to keep a car from being repossessed a Chapter 13 filing will allow the individual or couple to create a payment plan to catch up with missed payments. The payment plan may span over a three to five-year period, depending on the household income and the monthly amount of the payment plan.

While the bankruptcy is in process, an automatic stay is put in place to keep creditors from repossessing or foreclosing on property. A few weeks after the initial filing, the Court will schedule a meeting of creditors where the bankruptcy trustee will meet with the debtor to verify the information on the bankruptcy petition. After the creditors’ meeting the court schedules a confirmation hearing to which the debtor does not need to appear. Only those creditors that object to the filing will appear and state their objections to the Trustee. In most cases, there are no objections and the chapter 13 plan can be confirmed.

The Chapter 13 Payment Plan

The Chapter 13 plan sets forth a payment plan for the secured, unsecured, and priority debt of the filer(s). Payments are received by the Trustee and distributed to creditors. A few weeks after the plan is filed with the court, a hearing is held to confirm the plan. If the Trustee does not object and finds that documents provided are “confirmable,” the judge will confirm the plan.

The debtor will make monthly payments to the trustee in form of a money order or cashier’s check. Should the unforeseen happen, and the debtor is unable to keep up with the plan’s payments, other options are in place to reduce payments or to convert the case to a Chapter 7 bankruptcy. A Chapter 7 bankruptcy generally liquidates the debtor’s non-exempt property to pay creditors.

The bankruptcy process is very complicated, and many forms must be filed in a timely manner in order to comply with the mandates of the court, as well as the requests of the Trustee. Retaining the services of an attorney who specializes in bankruptcy in your area is highly recommended to make sure all necessary documents are filed in accordance with the court’s schedule. If you are considering filing for bankruptcy, consult an attorney to find out more about whether you should file a Chapter 7 or Chapter 13.