When someone files a Chapter 13 bankruptcy, it indicates that they are unable to repay their debts as agreed upon when the debt was incurred. The Chapter 13 bankruptcy law permits the reorganization of these debts for the purpose of repayment. This differs from a Chapter 7 bankruptcy, in which debts are immediately discharged and no repayment plan is established.
In most instances, a Chapter 13 bankruptcy is accompanied by a repayment plan in which the debtor makes monthly, bimonthly, or weekly payments to the trustee. The trustee then provides assistance by distributing payments to creditors in a timely manner. In the majority of cases, the debt has been restructured and is less than the total amount owed to all creditors.
In a Chapter 13 bankruptcy, it is the trustee's responsibility to analyze the debtor's financial situation in order to devise a reasonable repayment plan and determine the monthly dollar amount of court-mandated payments. The trustee determines the amount the debtor will be able to repay over the course of the repayment plan based on the family's or individual's earning capacity, as well as any obligations and necessary living expenses.
Because Chapter 13 requires debtors to make routinely scheduled payments to the court, it is generally only recommended for those with a stable income. In the majority of cases, filing for Chapter 13 bankruptcy is not the best option for seasonal laborers and independent contractors.
When a debtor has consented to the terms and payment schedule of a Chapter 13 bankruptcy, it is imperative that they always make payments on time. If the defendant fails to make the agreed-upon payments, the entire court file and case can be tossed out.
If this were to occur, the creditors would once again have the right to pursue the debtor for the full amount of the debt, and they would not have access to the bankruptcy protections until they were eligible to file again.
If a debtor under a Chapter 13 repayment plan is unable to keep up with the payment schedule, it is possible to obtain relief from the agreed-upon reorganization terms. In the event that the debtor is unable to make court-ordered payments, such as if he or she loses a job or other source of income or suffers from a protracted illness, they may be able to file a bankruptcy claim form known as a """"hardship discharge.""""
In order for a debtor who has accepted a Chapter 13 bankruptcy repayment plan to be eligible for a ""hardship discharge,"" the case cannot be converted to Chapter 7 status. Before attempting to make modifications to a Chapter 13 plan, it is recommended to have a bankruptcy attorney review the various guidelines and requirements.
Any modification to a Chapter 13 bankruptcy filing requires the debtor to return to court, which can be both distressing and costly. Therefore, it is strongly advised to make every effort to adhere to the repayment schedule.""
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