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How does chapter 13 bankruptcy work for individuals?

The loss of a job, a change in your wages or any other number of factors can cause you to experience financial difficulties. If you are like others in Lane County who have been faced with such difficulties, you may have considered debt relief options, such as bankruptcy, to help you regain control of your finances. While chapter 7 filings are generally the most common, filing for chapter 13 bankruptcy may be better suited for your situation and needs.

Sometimes referred to as a wage earner’s plan, chapter 13 bankruptcy may be a better option for those who are able to make regular monthly payments. Through this type of filing, you create a plan to repay your debts over a three to five year period. Because these plans are spread out, they often are more budget friendly. Other bankruptcy filings may require you to liquidate your assets to offset your debts. However, by filing for chapter 13 bankruptcy, you are typically able to keep your property, including your home.

Like other bankruptcy filings, you must undergo credit counseling with an approved agency, before filing for chapter 13 bankruptcy, according to the U.S. Courts. Included in your petition to the court, is a proposed payment plan. You are able to develop this plan yourself in good faith. The plan is also sent to each of your creditors. In general, creditors cannot decline to accept a chapter 13 repayment plan. They can, however, contest the plan if they feel it was not proposed in good faith or if they feel it does not meet the best efforts and best interest of the creditors tests.

This plan should describe in detail how much you will be paying towards each of your priority debts, as well as how you intend to fulfill these payments. Priority debts include alimony, child support and certain tax obligations, and they must be paid in full. Additionally, your plan should include a plan for putting any disposable income left over after your required payments towards the repayment of your unsecured debts. Unsecured debts, which may include medical bills or credit card debts, may be eligible for discharge once your plan is completed.

This post has provided an overview of how chapter 13 bankruptcy works. However, it should be considered only as general information and not taken as professional legal advice.

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