Chapter 13's Important Features
An overview of Chapter 13 bankruptcy.
Here are some important features of Chapter 13 bankruptcy:
Chapter 13 bankruptcy is very powerful. You can use it to stop a house foreclosure, make up the missed mortgage payments and keep the house. You can also pay off back taxes through your Chapter 13 plan and stop interest from accruing on your tax debt.
Filing your papers with the bankruptcy court stops creditors in their tracks. When you file for Chapter 13 bankruptcy (or any other kind of bankruptcy), something called the automatic stay goes into effect. It immediately stops your creditors from trying to collect what you owe them. At least temporarily, creditors cannot legally grab (garnish) your wages, empty your bank account, go after your car, house or other property, or cut off your utility service or welfare benefits.
Some people use Chapter 13 bankruptcy to buy time. For example, if you are behind on mortgage payments and about to be foreclosed on, you can file Chapter 13 bankruptcy papers to stop collection efforts, and then attempt to sell the house before the foreclosure.
Chapter 13 bankruptcy requires discipline. For the entire length of your case (three to five years), you will have to live under a strict budget; the bankruptcy court will not allow you to spend money on anything it deems nonessential.
The majority of debtors never complete their Chapter 13 repayment plans. Although most people file for Chapter 13 bankruptcy assuming they'll complete their plan, only about 35% of all Chapter 13 debtors do. Many drop out very early in the process, without ever submitting a feasible repayment plan to the court. If you can come up with a realistic budget and stick to it, however, you should have no trouble completing your Chapter 13 plan.
Payments may be deducted from your wages during your case. If you have a regular job with regular income, the bankruptcy court will probably order that the monthly payments under your Chapter 13 plan be automatically deducted from your wages and sent to the bankruptcy court.
Chapter 13 bankruptcy can stay in your credit file for up to ten years from the day you file your papers, although rarely are Chapter 13 bankruptcies reported for more than seven years. After your case is over, however, you can take steps to improve your credit. In fact, some Chapter 13 bankruptcy courts have established programs to help you do just that. In such a program, if you have paid off around 75% or more of your debts, you may attend money management seminars and apply for credit from certain local creditors.
