One of the types of financial relief that a debtor can file for is a Chapter 13 bankruptcy, which is provided for in Federal code and statue. Filing for a Chapter 13 allows the debtor to create a repayment plan of either three years or five years to pay back specific creditors in accordance to the plan. The repayment plan must adhere to the rules that govern bankruptcy, must be agreed to by all parties involved, and must be overseen by a court-appointed trustee.
When someone files a Chapter 13, it means that they are not able to repay their debt obligations as they originally agreed to do when the debt was taken on. Chapter 13 bankruptcy law allows for these debts to be reorganized for the purpose of repayment. This is different than a Chapter 7 bankruptcy, in which the debts are discharged immediately instead of being set up with a repayment schedule.
In most cases, a Chapter 13 type of bankruptcy has a repayment plan in which the debtor makes monthly, bimonthly or weekly payments to the trustee. The trustee then provides bankruptcy help by taking care of properly dispersing the payments to the creditors. In most instances, the amount of the debt has been restructured and is less than the full amount that is owed to all the creditors.
The trustee in a Chapter 13 bankruptcy is responsible for learning about the financial situation of the person who is filing for bankruptcy, to determine how much they are able to make in payments to the bankruptcy court on a regular basis. The trustee also takes into account the income level of the person, or family, and the obligations which are exempt from the bankruptcy proceedings.
Because a Chapter 13 requires that regularly scheduled payments be made to the court, it is generally recommended only for debtors who have a regular and stable income. For those who are seasonal workers or freelancers, filing Chapter 13 bankruptcy is not the best solution for their financial troubles, in most instances.
When a debtor has agreed to the terms and payment plan of a Chapter 13, it is crucial that they always make their payment to the bankruptcy court on time. If they fail to make their payments as agreed, the entire bankruptcy court record and case can be thrown out. Should this happen, the creditors once again have the right to come after the debtor for the full amount of the debt and the protections under the bankruptcy relief process would not be available to them until they are eligible to file bankruptcy again.
If it occurs that a debtor, who is under a repayment plan through a Chapter 13, is not able to keep up with the payment schedule, then there is the possibility to find bankruptcy relief from the reorganization provisions agreed upon. In the case of a situation that arises, in which the debtor is unable to make the payments to the court as agreed, such as in the case of losing a job or other source of income or if they have an extended illness, they might be able to file a bankruptcy claim form known as a “hardship discharge.”
For a debtor who has agreed to a Chapter 13 bankruptcy repayment plan to be able to seek a “hardship discharge,” the case cannot qualify to be changed into a Chapter 7 bankruptcy instead. It is best to have a bankruptcy attorney reviews the various guidelines and requirements before trying to make any type of changes to a Chapter 13 plan. Any type of change to a filing Chapter 13 bankruptcy means that the debtor must return to the bankruptcy court and this step can be both stressful and expensive. Because of this, it is strongly recommended to make every effort to stick to the repayment plan.