bankruptcy payments
Chapter 13 Payments and Personal Bankruptcy
Chapter 13 payments are used when debt is restructured through bankruptcy. Debtors must abide by the repayment plan for two to five years. During the restructured debt period, debtors are prohibited from incurring new debt unless approved through the court.
Chapter 13 payments are usually paid to a bankruptcy Trustee and dispersed to creditors on a monthly basis. Occasionally, chapter 13 payment plans are setup through payroll deduction. Automatic payroll payments are usually reserved for debtors who have been employed with the same company for three or more years. Should the debtor quit or be terminated by the employer, bankruptcy payments will be revised through the court.
Many people turn to chapter 13 bankruptcy to avoid foreclosure. While filing personal bankruptcy can temporarily stop lenders from commencing with foreclosure action, if debtors do not adhere to their chapter 13 payments repayment plan, they will eventually lose their house.
One thing homeowners often fail to understand is they must be financially able to pay regular monthly home loan payments in addition to chapter 13 payments. Individuals struggling to make ends meet find that bankruptcy repayment plans create a heavier debt load which can cause them to fail out of bankruptcy.
When debtors fail out of bankruptcy, creditors are legally entitled to petition the court seeking bankruptcy dismissal. Depending on the circumstances, bankruptcy judges can elect to allow borrowers to file for Chapter 7 or dismiss the case.
Chapter 7 is referred to as ‘liquidation bankruptcy’ because debtors must liquidate assets to repay creditor debts. Debtors are not allowed to remain in their home and must sell the property or give the house back to the bank using deed in lieu of foreclosure.
Bankruptcy is a debt reduction option available to all U.S. citizens. However, certain eligibility requirements must be met. Chapter 13 eligibility requirements state debtors cannot owe more than $307,675 in unsecured debts or $922,975 in unsecured debts.
Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005. BAPCPA requires debtors to obtain credit counseling through a U.S. Trustee Program approved agency within 180 days of submitting bankruptcy petitions.
To determine the amount of debt to be repaid through chapter 13 payments, debtors must undergo the ‘means’ test; a financial tool that measures debtor’s income against their states’ median income. If debtor’s earn as much or greater than median income, they are required to file chapter 13 bankruptcy. When debtors earn less, they might be allowed to file chapter 7.
Once bankruptcy petitions are filed, debtors are required to provide a credit counseling certificate, chapter 13 repayment plan, proof of income, detailed financial statement, and recent years’ tax returns.
Chapter 13 provides debtors with the opportunity to restructure debt and regain control over finances. However, personal bankruptcy stays on credit reports for ten years; making it difficult to obtain credit of any kind.
Before making a final decision to obtain bankruptcy protection, take time to investigate bankruptcy alternatives such as budgeting, credit counseling, debt settlement or debt consolidation. Oftentimes, these debt reduction options help debtors achieve the same result without incurring substantial credit damage.
About the Author
Simon Volkov is a real estate investor residing in southern California. He specializes in buying real estate from individuals facing foreclosure or bankruptcy. He has published hundreds of articles on topics such as personal money management, bankruptcy and chapter 13 payments via his website at www.SimonVolkov.com.
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