Exploring the Legal Issues of Chapter 13 Bankruptcy


Years ago, the legal system allowed people to file for Chapter 7 bankruptcy in order to cancel their debt obligations. Known as a "personal liquidation," most of their creditors were left without recourse. In 2005, the laws were changed to reduce the number of borrowers who could use a "personal liquidation" as a financial escape hatch. Today, those who have amassed large amounts of debt - secured or unsecured - need to meet certain requirements before qualifying. If they're unable to do so, they're forced to file Chapter 13.

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In today's article, we'll take a closer look at Chapter 13. I'll explain the basics of what it entails, how the process works, and what you can expect in the event that you need to file.

Basics Of Chapter 13 Bankruptcy

Under this form of bankruptcy, a debtor reorganizes their personal finances rather than go through liquidation. They'll develop a payment plan through which they pay creditors the amount of their debt, or an agreed upon portion. In return, the debtor is shielded from wage garnishment, levies, or having to surrender their assets.

Prior to filing, a person is legally required to consult with a credit counselor as well as attend classes that teach the basics of managing their personal finances. Paying for the classes is the responsibility of the person filing. Both requirements must be fulfilled before a court will grant a Chapter 13.

How The Process Works

After a debtor has fulfilled the requirements to file, he or she will offer a tentative repayment plan for their outstanding debts. The court needs to approve the plan before moving forward. Once the repayment plan has been approved, a trustee is appointed to oversee the collection and distribution of the debtor's payments. In most cases, the process lasts up to five years, during which the debtor isn't allowed to purchase items that the trustee or court considers unnecessary.

A lot of debtors misunderstand that this form of personal reorganization places them under the watchful eyes of the court for several years. In the end, fewer than 40% of the people who file fulfill the repayment plan they created. If you're thinking about filing, speak with a lawyer who is familiar with this type of personal bankruptcy.

Hiring A Bankruptcy Lawyer

Even though it's possible to file without the help of an attorney, most people would find an attorney's advice invaluable. The legal issues surrounding both forms of personal bankruptcy are complicated. Each person's unique circumstances should be examined in order to identify which type is most appropriate and advantageous. Before filing, speak with an experienced lawyer who can offer legal guidance with respect to your personal financial situation. Their insight will help you select the right path in light of your debt, your ability to repay it, and your current financial crisis.


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