A Chapter 13 Bankruptcy (called the wage earner's plan) lets you reorganize your debt and use your income to pay some or all of your creditors in monthly installments over a specified period of time, usually between three to five years.
If your income is too low or if it is not consistent, you may not be eligible for Chapter 13 relief.
To begin the Chapter 13, a Voluntary Petition Form is filled out along with a Statement of Financial Affairs.
A schedule of real and personal property, a schedule of creditors and expenditures, and a schedule of transactions you were involved in prior to the filing will also be required to be completed.
You will also be required to file a Chapter 13 Repayment Plan on which you have to propose how you are going to make payments to your creditors.
You must respond to all questions on these forms and answer with the utmost honesty. You will have to swear under penalty of perjury that you have been truthful on all forms turned over to the courts.
Although an individual can file his own bankruptcy petition with the court, it is advisable to contact a bankruptcy attorney. Chapter 13 filings require a good deal of time and work because they are fairly complex.
As of April 2005, new, more stringent, bankruptcy legislation was signed into law. Under the new laws, there will be no credit card protection and filers may be required to pay for credit counseling.
Once a Chapter 13 petition is filed, along with all statements and schedules required, a trustee is assigned to the case by the court and the trustee remains on the case until the case is discharged.
By filing the petition with the court, you are automatically placed under what is called an "automatic stay." The "automatic stay" immediately stops creditors from calling you, filing lawsuits against you or continuing with lawsuits that are already filed.
Foreclosures already filed or continuing with foreclosure actions already filed, wage garnishments or any other collection actions against you must stop on the day the petition is filed with the court.
It is the responsibility of the trustee to determine, based on information provided on your petition, whether or not it is feasible to grant you a permanent stay from your creditors. For this reason, as stated above, all documentation has to be filled out correctly and honestly.
You will probably have to make at least one appearance in court for a confirmation hearing at which time the judge will either approve or reject your repayment plan. At that time, your creditors or the trustee may raise objections to your proposed plan.
The court will determine if your plan was made in good faith, if it is feasible, if it promotes the best interest of your creditors or if the plan unfairly discriminates against any one of your creditors in particular.
If there are no objections by your creditors or the trustee, and your plan shows that you are capable of making monthly payments without undo hardships, the judge will approve the plan and you may start making payments as scheduled.
If you, for whatever reason, you fail to make payments as planned, creditors may petition the court for what is called "a relief of stay" hearing and if the court agrees, the creditor may resume foreclosure proceedings, repossessions or other avenues to collect the debt.
At the end of the bankruptcy period, you will most likely receive a letter from the court informing you that the case is over and all of your debt has been discharged.
Note: There have been recent changes in bankruptcy laws so it is advisable to contact an attorney if you plan to file.