Bankruptcy faq
Bankruptcy is a federal court process through which consumers and businesses either eliminate their debt or repay them according to the plan approved by and under the protection of the bankruptcy court. The above definition makes it clear that bankruptcy can be either of the liquidation of debt or the reorganization of debt variety.
In the liquidation variety of bankruptcy faq, commonly known as the Chapter 7 bankruptcy, your property will be sold by the bankruptcy court to pay off as much of your debt as possible, but you will be left with enough property to try and make a fresh start.
However, in the reorganization variety, commonly known as the Chapter 13 bankruptcy, the payment of your debt is reorganized so that you can repay our debt over the next three to five years.
Chapter 13 bankruptcy The Wage Earners Plan.
Chapter 13 bankruptcy, also known as the Reorganization bankruptcy faq or the wage earners plan, is quite different from the Chapter 7 bankruptcy. The first and foremost difference is that in Chapter 7 bankruptcy your debts will be wiped out but you may lose some of your property in the process because the court will sell off your non-exempt property to pay off your creditors as much as possible. On the other hand, in Chapter 13 bankruptcy, you will have to use your income to pay off your debts either partly or in full over a fixed time period. This time usually ranges from three to five years and depends upon the size of your debt and your current income.
Just as the bankruptcy court may not allow everyone to file for a Chapter 7 bankruptcy, similarly not everyone may be found eligible for a Chapter 13 bankruptcy faq. In Chapter 13, the basic premise is that you will use your income to repay either some or all of your debt, so to become eligible for Chapter 13 bankruptcy, you will have to convince the bankruptcy court that you will be able to meet your payment obligations. If the court concludes that your income is too irregular or too low, you will not be allowed to file for Chapter 13.
Also, if your total debt burden happens to be too high, again you will become ineligible to file for Chapter 13. Currently, to be eligible for Chapter 13 bankruptcy, your secured debt should not exceed $922,975 and your unsecured debts cannot be more than $307,675.
How Chapter 13 process is carried out?
Before filing for bankruptcy, you are required to receive credit counseling from an agency approved by the United States Trustees Office. The counseling agencies generally charge a fee for their services, but in case you are unable to pay, then they must provide counseling either at reduced rates or even free of cost. Once this counseling is completed, you will be given a certificate by the credit counseling agency showing that you meet the requirement to file for bankruptcy.
Now you can file your case in the bankruptcy faq court. To do this, you need to file this certificate, a few forms in which you will list what you own, earn and owe, your federal tax returns for the previous year and some other tax documents. In addition to all this, you will also have to file your Chapter 13 repayment plan explaining in detail how you plan to pay off your debt over time. Last but not the least; you will also have to pay the filing fee which currently happens to be $274.
The Chapter 13 repayment plan happens to be the most important document in the entire Chapter 13 bankruptcy case. In this form, you will need to describe in detail how and how much you will repay each of your creditor. There is no single standard official form for submitting this plan, but many courts have their own forms.
Once you have filed your Chapter 13 repayment plan, you must begin making payments according to that plan within 30 days of its filing with the bankruptcy court. You make this payment to the bankruptcy trustee who happens to be the person appointed by the court to oversee your case. After the confirmation of your repayment plan, the trustee will distribute this money among your creditors. Bankruptcy court can also order, in case you have a regular income from a regular job, for your monthly payment to be automatically deducted from your salary and sent to the court.
Debts which must be paid in full.
Under Chapter 13 plan, there are certain debts which are to be paid in full. These include child support and alimony, wages you owe to your employees and certain tax obligations. All these are called priority debts. The Chapter 13 repayment plan must also detail how you will regularly pay on your secured debts, which usually happens to be your car loan and home mortgage. On these secured debts, you will have to pay arrearages also.
After making all these payments, if there is any disposable income left with you; mention it clearly in the plan. This disposable income will go towards the repayment of your unsecured debts.
How long will this plan last
The length of your plan will naturally depend on how much you earn and how much you owe. If your average monthly income during the six months prior to the date of filing for bankruptcy is higher than the median monthly income from your state, you must propose a five-year plan. However, if your income comes out to be lower than median, propose a three-tear plan. Of course, the day you will repay all your debts in full, this plan will end, irrespective of whether or not you have reached the three or five year mark.
What happens if you fail to follow the plan?
If for any reason, you cannot successfully finish your Chapter 13 plan and therefore can't keep up the payments the trustee may modify the plan in one of the following three ways:
* If your problem looks temporary, you will be given a grace period.
* Your total monthly payment may be reduced.
* Repayment period may be extended.
However, if the court concludes there is no way you will be able to complete the plan because the things may be totally out of your control for example, you may suffer from a debilitating illness the court might discharge your debt on the basis of hardship.
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