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Chapter 13 Payments: Reorganizing Debt To Retain Property And Assets

May 10, 2008
Chapter 13 payments are prearranged when bankruptcy is approved through the court. In most instances, a Trustee is assigned to oversee the debtor's case and will disperse payments to creditors until accounts are paid in full. Occasionally, chapter 13 payments can be made directly through payroll deductions.

Once debt reorganization has been approved, Chapter 13 payments are clearly outlined in the repayment plan and leave little room for deviation. Consistent payments must be made to repay creditors, tax liens and mortgage payments, if applicable.

In cases where the debtor holds a mortgage, Chapter 13 bankruptcy can stop the foreclosure process. However, if the debtor fails to make mortgage payments in a timely fashion, the lender can commence with foreclosure proceedings.

In instances where the debtor fails out of bankruptcy, the court may order the individual to liquidate their assets under Chapter 7 Bankruptcy. This action requires the debtor to relinquish their property to the Trustee who will sell the assets and repay creditors.

Chapter 13 bankruptcy is available to all U.S. citizens. This chapter of bankruptcy allows individuals to reorganize their debt so they can retain their property and assets. Payments are extended over a period of time, allowing the debtor to make smaller monthly payments. In some instances, creditors will reduce interest rates or agree to a lesser amount than is owed on the debt.

With Chapter 13 bankruptcy, certain eligibility requirements must be met. Unsecured debts must be less than $307,675 and secured debts must be less than $922,975. Prior to filing bankruptcy, the debtor must obtain credit counseling through an approved agency.

When the debtor files for chapter 13 relief, they must submit a certificate of credit counseling, debt repayment plan, proof of income and expenses, and copies of the most recent year tax return. A detailed list of debts owed to creditors must be included, along with proof of living expenses including food, shelter, utilities, taxes, transportation and healthcare expenses.

Arranging Chapter 13 payments will stop collection actions against the debtor. However, it does not eliminate debts. As long as payments are made in a timely fashion and disbursed by the Trustee or through payroll deductions, no further action will be taken against the debtor.

If circumstances arise which cause the debtor to be unable to make payments, the Trustee must be notified immediately. In instances where the problem is temporary, the Trustee can elect to reduce or temporarily suspend payments or extend the repayment period.

When the financial setback is determined to be long-term, the bankruptcy court may recommend modification of the plan, discharge the debts on the basis of hardship, dismiss the Chapter 13 case, or convert to Chapter 7 liquidation. If the debtor fails to notify the Trustee to modify their repayment plan, creditors can move forward with collection actions.

Chapter 13 Bankruptcy payments provide individuals with the opportunity to make a fresh start, yet retain their property and assets. When developing the repayment plan it is crucial to arrange affordable payments which the debtor can consistently make in a timely fashion. Otherwise, the effort will be futile; causing the debtor to fail out of bankruptcy and potentially lose their home, automobile and other valuable assets.
About the Author
Simon Volkov is a private investor who specializes in helping individuals quickly liquidate their assets. Simon offers solutions to individuals facing foreclosure, probate and chapter 13 bankruptcy. Learn more by visiting www.SimonVolkov.com.
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