CHAPTER 13 BANKRUPTCY
If you have concluded that it is impossible for you to meet all your debt obligations, Chapter 13 bankruptcy may be the solution. This form of bankruptcy is a “reorganization” rather than a “liquidation,” because you retain ownership of all your property when you successfully file a Chapter 13 bankruptcy. One very appealing benefit that can provide temporary relief is the automatic stay. While the reorganization is underway, creditors are required to suspend their collection attempts (though there are some exceptions to this rule.)
With a Chapter 13, you are required to use your income to repay your debt, or a portion of your debt, over time. When you file, you must provide proof that you have sufficient income to keep your reorganized payments current, and you present a payment plan proposal. A bankruptcy attorney can be of great assistance during this phase of the process, because there are very specific rules. One stipulation is that priority debts must be paid in full. These would include secured debts like:
- Back spousal support
- Delinquent child support
- Mortgage delinquencies
- Motor vehicle payments
Unsecured debts like credit card balances and unpaid medical bills may or may not be paid back in full. The portion that you will be required to pay will depend on the amount of the debts in relationship to the disposable income that remains after your priority debt payments are made. Payments plans are structured to last for three to five years; the exact duration will depend upon the circumstances.