One of the types of financial relief that a debtor can file for is a Chapter 13 bankruptcy, which is provided for in Federal code and statue. Filing for a Chapter 13 allows the debtor to create a repayment plan of either three years or five years to pay back specific creditors in accordance to the plan. The repayment plan must adhere to the rules that govern bankruptcy, must be agreed to by all parties involved, and must be overseen by a court-appointed trustee.
When someone files a Chapter 13, it means that they are not able to repay their debt obligations as they originally agreed to do when the debt was taken on. Chapter 13 bankruptcy law allows for these debts to be reorganized for the purpose of repayment. This is different than a Chapter 7 bankruptcy, in which the debts are discharged immediately instead of being set up with a repayment schedule.
In most cases, a Chapter 13 type of bankruptcy has a repayment plan in which the debtor makes monthly, bimonthly or weekly payments to the trustee. The trustee then provides bankruptcy help by taking care of properly dispersing the payments to the creditors. In most instances, the amount of the debt has been restructured and is less than the full amount that is owed to all the creditors.
It is the trustee in a Chapter 13 bankruptcy who is in the position of analyzing the financial situation of the person filing for bankruptcy, so that he can make a reasonable repayment plan and set the dollar amount of the payments that are to be made to the court monthly. The trustee looks at the earning potential of the family, or the individual, and notes any obligations and living expenses that are needed and then decides on the amount the debtor will be able to repay over the course of the repayment plan.
Because a Chapter 13 requires that regularly scheduled payments be made to the court, it is generally recommended only for debtors who have a regular and stable income. For those who are seasonal workers or freelancers, filing Chapter 13 bankruptcy is not the best solution for their financial troubles, in most instances.
When a debtor has agreed to the terms and payment plan of a Chapter 13, it is crucial that they always make their payment to the bankruptcy court on time. If they fail to make their payments as agreed, the entire bankruptcy court record and case can be thrown out. Should this happen, the creditors once again have the right to come after the debtor for the full amount of the debt and the protections under the bankruptcy relief process would not be available to them until they are eligible to file bankruptcy again.
If it occurs that a debtor, who is under a repayment plan through a Chapter 13, is not able to keep up with the payment schedule, then there is the possibility to find bankruptcy relief from the reorganization provisions agreed upon. In the case of a situation that arises, in which the debtor is unable to make the payments to the court as agreed, such as in the case of losing a job or other source of income or if they have an extended illness, they might be able to file a bankruptcy claim form known as a “hardship discharge.”
In order for a debtor, who is under a Chapter 13 bankruptcy agreement, to file a “hardship discharge,” the Chapter 13 must not be able to be shifted to the Chapter 7 bankruptcy program. There are a set of stipulations and guidelines that are best reviewed by a bankruptcy lawyer who can fully review the case before recommending a modification to a Chapter 7 bankruptcy or a request for a “hardship discharge.” Either way, these changes to filing Chapter 13 bankruptcy require a return to court and can be expensive and stressful, so it is best to do everything in your power to fulfill the agreement made under the Chapter 13 plan.
