Chapter 13 Explained



Chapter 13 is a chapter that many may refer to as reorganization bankruptcy. This chapter protects those debtors that do not want to sell-off their assets in order to settle their outstanding debts. This is also a good plan for those debtors that have valuable property that they want to retain or that which is not fully covered by the exemptions guidelines.

This is a process that starts with the debtor developing a plan to repay their debts to creditors within a period of 3 to 5 years. The length of time of the repayment plan and the plan itself must be approved by the court Trustee.

This plan will demand the debtor have a constant income stream in order for them to meet their payments whether the payments are monthly or biweekly. As such, it is not appropriate for anyone who cannot make the payments and make them on time. These individuals will probably be channelled into a Chapter 7 bankruptcy since they lack the income for a Chapter 13.

As stated above, the repayment plan will need to be taken to court for its approval. If the court does not approve it, then the Chapter 13 is not allowed to move forward.
 
Immediately after the debtor files their application for bankruptcy, they are protected by the law. For instance, the creditors have no right to sue them over the same debts that they listed on their application, they cannot garnishee wages or make harassing telephone calls demanding payments.

When the process begins, it should be noted that all payments must be made by the debtor as per the agreement made between the debtor and the creditors and approved by the court. Skipping payment for these debts as agreed might lead to cancellation of the bankruptcy.

The discharge from a Chapter 13 bankruptcy is not granted until the approved payment plan has been successfully completed whether it is 3 years or 5 years.  Many individuals falsely believe their discharge begins when their repayment plan is accepted by the court.

So exactly how does this affect your credit?  Well, the bankruptcy remains on your credit report for seven years AFTER THE DISCHARGE DATE. Which means that if your discharge was in 3 years + 7 years = 10, the bankruptcy will remain on your credit report for 10 years.  If the discharge took 5 years + 7 years = 12, then the bankruptcy will be on your credit report for 12 years.

Money lenders are usually afraid of lending people with this kind of information in their credit history. Some lenders may even take advantage of the individuals with such a record. This does not necessarily mean that they will not be able to obtain a loan. What it means is that they can get the loan, but under terms and conditions that are different than someone who has not taken bankruptcy.

If your decision is to take a Chapter 13 bankruptcy, and you qualify, it is wise to consult with an attorney who can advise you on how to proceed to protect yourself.