How Can Filing Chapter 13 Bankruptcy Improve Your Financial Situation?

How Can Filing Chapter 13 Bankruptcy Improve Your Financial Situation? "Numerous factors motivate debtors to declare Chapter 13 bankruptcy. The initial motivation is to take advantage of the automatic stay. The automatic stay prevents creditors from collecting debts owed by insolvent individuals. Once a bankruptcy petition has been filed, creditors are required by federal law to cease all debt collection efforts. This includes the repossession of automobiles and the foreclosure of real estate such as a residence. Also included are phone calls from creditors, lawsuits, wage garnishments, and any other attempts to collect debts incurred prior to registering for bankruptcy. The automatic stay is a potent bankruptcy code instrument. If creditors violate the automatic stay, a bankruptcy judge may impose monetary sanctions on them.The discharge is the second type of relief available in Chapter 13 bankruptcy. Once a Chapter 13 bankruptcy case is concluded, creditors are prohibited from collecting the debts specified in the bankruptcy schedules, unless the Chapter 13 plan stipulates that the debt survives the discharge or the debt is not dischargeable for another reason. The discharge permanently protects the debtor from the collection of all pre-petition debt.Chapter 13 debtors do not receive these protections without contributing something in return. To obtain a discharge, debtors must submit a Chapter 13 plan. The Chapter 13 plan describes to the court how creditors will be repaid in the bankruptcy proceeding. In Chapter 13 plans, not all creditors are regarded equally. Secured creditors, such as mortgage companies and creditors providing loans for the purchase of automobiles, may be paid through payments to a trustee, or the plan may stipulate that the debtor will continue to make payments to the creditor outside of the plan. Priority creditors include tax debts owed to the Internal Revenue Service and delinquent child support payments. In the majority of Chapter 13 cases, priority creditors are paid in full. In addition to settling past-due taxes and child support, the plan requires debtors to continue filing annual tax returns and making child support payments.Unsecured creditors are paid if the debtors have disposable income and can pay these creditors according to the plan. In a proposal, unsecured creditors could receive no payments, full payment, or a partial payment. Student loan debt is not dischargeable, and any amount not repaid through the repayment plan must be paid after the bankruptcy case is concluded. At the conclusion of a Chapter 13 bankruptcy case, the debtor receives a discharge and, if all goes well, a fresh start, having eliminated the majority or all of their unsecured debt, paid off their priority debt, and repaid secured creditors according to the plan.
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