What Is Chapter 13 Bankruptcy? “Wage Earner Bankruptcy”?

by Dori Tery on December 11, 2013

Taking Chapter 13 Bankruptcy

If a person takes chapter 13 bankruptcy it enables that person to create a program that can help them to pay off their debts. This is why this form of bankruptcy is called the wage earner’s plan. By using this method of bankruptcy the debtor comes up with a payment plan to make payments to creditors over a 3 or a 5 year period.

If the current income of the debtor is less than an applicable income that is the median income for the state, the payment plan will be for three years. If the monthly income of the debtor is greater than the state medium income must be for five years repayment. Creditors are then prohibited from attempting to collect any payments from the debtor.

One major advantage of taking chapter 13 bankruptcy, is that a debtor can protected the home that they own from foreclosure. When the bankruptcy is filed, foreclosure proceedings are halted and the debtor may be able to bring delinquent payments back to even during the bankruptcy period. They must still make the regular house payments over the bankruptcy term, but it is a safe harbor that stops the foreclosure.

There is also a provision in the Chapter 13 bankruptcy rules that protects third party co-signers on a note or a loan. This applies primarily to consumer debts for people who have had a third party cosign for them, and in the case of the chapter 13 rules, the third party will not be liable in this case.

What Happen When Someone Has Filed Chapter 13 Bankruptcy?

When a Chapter 13 bankruptcy procedure is filed, a neutral trustee is assigned to administer the case. These individuals or entities are usually appointed by the court, and can be a bank, a law firm or anyone else with the wherewithal to perform the duties of the trustee. The trustee both evaluates the case and collects the payments from the debtor for distribution to the creditors.

When a Chapter 13 case is filed, the filing automatically “stays” or stops any further collection actions of creditors. The stay is put into effect by the rule of law and it requires no legal action. As long as the stoppage is effective creditors may not start any collection action, any lawsuits, wage assignments, or make phone calls wanting payment. All of these creditors are notified by the court that the bankruptcy is in effect and that they may not initiate any of the above actions.

In a chapter 13 case the notified creditors are notified of an opportunity to file claims against the debtor within 90 days after the first notified meeting of creditors. The meeting is set by the court and creditors may attend the meeting to be on record if there are any disputes in amounts owed.

Unless the court grants an extension, the debtor must file a repayment plan and the court must approve it. The debtor will then make payments to the trustee on a regular basis based upon the amount that he or she says that is a reasonable amount to pay.

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