Full question:
How does the Chapter 13 Bankruptcy Process work?
- Category: Bankruptcy
- Date:
- State: Alabama
Answer:
Under Chapter 13 bankruptcy, all debts are combined, and the debtor proposes a repayment plan to the court. The court may accept repayment percentages as low as ten percent of the total debt, but plans that repay at least seventy percent are recommended. The court discharges the portion of the debt that cannot be repaid, and the debtor starts making payments on the remainder. Payments must be completed within three years, although extensions can be granted.
Debtors have significant flexibility in preparing their repayment plans, with the main requirement being that the plan is workable. Advantages for the debtor include retaining unsecured property, not needing creditor consent, and not being required to repay one hundred percent of the debts. Secured creditors (those with a lien on property) have limited options; if they reject the plan, they can only repossess the secured item for its current market value. The remaining balance on the original contract becomes an unsecured debt. Since the market value of items often drops immediately after purchase, secured creditors usually prefer to accept the plan for a potentially larger return.
Additionally, filing the petition halts all collection efforts by creditors. There is also no waiting period to file another Chapter 13 petition after completing the first one. However, certain debts, such as alimony, child support, guaranteed student loans, and taxes, cannot be discharged under Chapter 13 proceedings.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.