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How does a Chapter 13 bankruptcy work?

The main purpose of a Chapter 13 bankruptcy is to consolidate debt and stop foreclosure or repossession. Even though a Chapter 13 plan extends payments over a longer period of time, a creditor cannot legally pursue collections on any account that is included in an active bankruptcy. These plans are intended to include past due payment amounts along with ongoing payments, thereby allowing a debtor additional time to bring an account back to current status.

The process of a Chapter 13 bankruptcy case is somewhat complex depending on the number of accounts and assets owned by a debtor. First of all, bankruptcy is a federal court matter. Therefore, the process is much more likely to go smoothly with an experienced bankruptcy attorney by your side.

The preparation of an initial petition will take some time, as a debtor will be tasked with collecting all of his or her creditor account information. The debtor will also need to provide proof of income for the prior six months, tax returns for the prior two years, and perform a required bankruptcy counseling course. Once all of this information is collected, it is ready to be input into a Chapter 13 bankruptcy petition, and a payment plan can be computed. There are many factors that go into a payment plan compensation, including secured versus unsecured accounts, past due payment amounts, ongoing payment amounts, and interest. Also taken into account are the debtor's intentions regarding collateral on secured accounts.

The petition and plan are then filed electronically with the federal bankruptcy court, a Chapter 13 bankruptcy trustee is assigned to the case, and a court date is set. After that, the debtor must go to a meeting with creditors and fulfill some other obligations.

From there, the Trustee, debtor, and Judge will work together to get a payment plan confirmed. Once confirmed, the debtor will make payments to the Trustee over a three to five year time period, depending on the plan specifications. The Trustee will advance payment to the creditors.

At the end of that period, all of the debtor's accounts should be current and in good standing. Any bankruptcy filing should be expected to appear on a debtor's credit report and affect the score for up to ten years from the date of filing.

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