Declaring personal bankruptcy is a stressful time for millions of U.S. families. However, a lot of the stress comes from not understanding the entire process. This chapter 13 bankruptcy FAQ will answer some of the more common questions.
Chapter 13 Bankruptcy FAQ
Most individuals who file under chapter 13 do so because they don't qualify for chapter 7 due to the Bankruptcy Abuse Prevention and Consumer Protection Act 2005. This is normally because of non-exempt assets or income being above the median level for that state.
How Much Time to Clear Debt?
All qualifying unsecured debt is cleared over a period of 36 to 60 months. The timeframe will depend largely upon how much money is owed and the amount of disposable income available to make payment. Post-petition creditors (agreements signed-up to after declaring personal bankruptcy) will need to be paid separately and in accordance with the specified T&C's.
What Percentage of Unsecured Debt Must be Repaid?
The debtor will normally be expected to offer about 50% of the total amount owed to creditors. For example, if $10,000 was owed, $5000 would need to be repaid at $138.89 over the next 36 months. This would work in a similar way to a debt settlement program.
Are Creditors Allowed to Make Contact with the Debtor?
A very important piece of bankruptcy information is that the creditor can only contact a debtor with respect to the reaffirmation of debts. This will only apply if the debtor wishes to continue making repayments in order to keep a secured asset, such as a car or house. Do not reaffirm old debts. If a creditor makes contact for this purpose, contact the court-appointed trustee.
What Happens to Secured Debt?
All secured debt repayments, such as the mortgage, motor homes, boats and car loans, will need to be paid on the exact same terms as before. Should the borrower fail to make repayment, lenders can seek relief from the right to stay. This means that the item that the loan is secured on can be repossessed.
It is beyond the scope of this chapter 13 bankruptcy FAQ to cover how each debt is dealt with so be sure to consult a qualified attorney before proceeding.
Can Foreclosure be Prevented?
Filing a petition with the court brings about an automatic stay on proceedings. A lender will not be able to foreclose on a property at that point. Following the hearing, it will be necessary to make 'payments outside the plan' in order to prevent repossession.
What Happens if Payments Cease?
If the problem is only temporary (normally less than 3 months), the trustee will work with the individual to resolve the matter. However, those who are unable to keep-up with repayments will find that chapter 13 is converted to a chapter 7 bankruptcy. Others will lose their bankruptcy protection entirely.
Although this chapter 13 bankruptcy FAQ answers many of the most common questions, it is no substitute for seeking answers to bankruptcy questions from a suitably qualified debt advisor or attorney. Remember that there are other debt solutions available, including Debt Management Plans.
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