Of Chapter 13 Bankruptcy
Here are some important features of Chapter 13
Chapter 13 bankruptcy is very powerful. You can use
it to stop a house foreclosure, make up the missed mortgage payments
and keep the house. You can also pay off back taxes through your
Chapter 13 plan and stop interest from accruing on your tax debt.
Filing your papers with the bankruptcy court stops
creditors in their tracks. When you file for Chapter 13 bankruptcy
(or any other kind of bankruptcy), something called the automatic
stay goes into effect. It immediately stops your creditors from
trying to collect what you owe them. At least temporarily, creditors
cannot legally grab (garnish) your wages, empty your bank account,
go after your car, house or other property, or cut off your utility
service or welfare benefits.
Some people use Chapter 13 bankruptcy to buy time.
For example, if you are behind on mortgage payments and about to be
foreclosed on, you can file Chapter 13 bankruptcy papers to stop
collection efforts, and then attempt to sell the house before the
Chapter 13 bankruptcy requires discipline. For the
entire length of your case (three to five years), you will have to
live under a strict budget; the bankruptcy court will not allow you
to spend money on anything it deems nonessential.
The majority of debtors never complete their Chapter
13 repayment plans. Although most people file for Chapter 13
bankruptcy assuming they'll complete their plan, only about 35% of
all Chapter 13 debtors do. Many drop out very early in the process,
without ever submitting a feasible repayment plan to the court. If
you can come up with a realistic budget and stick to it, however,
you should have no trouble completing your Chapter 13 plan.
Payments may be deducted from your wages during your
case. If you have a regular job with regular income, the bankruptcy
court will probably order that the monthly payments under your
Chapter 13 plan be automatically deducted from your wages and sent
to the bankruptcy court.
Chapter 13 bankruptcy can stay in your credit file
for up to ten years from the day you file your papers, although
rarely are Chapter 13 bankruptcies reported for more than seven
years. After your case is over, however, you can take steps to
improve your credit. In fact, some Chapter 13 bankruptcy courts have
established programs to help you do just that. In such a program, if
you have paid off around 75% or more of your debts, you may attend
money management seminars and apply for credit from certain local
A business, even a sole proprietorship, cannot file for
Chapter 13 bankruptcy in the name of that business. Businesses are
steered toward Chapter 11 bankruptcy when they need help reorganizing