When Bankruptcy is the Only Option - Try Chapter 13

Filing for bankruptcy can be a hard decision for many hard-working people, since even the thought of it is akin to admitting financial failure. In actuality, the causes of why people may file are often due to circumstances outside their control. Significant life events, losing a job, and forced relocation are all examples of events that may cause significant financial hardship. Bankruptcy is designed to give people a fresh start, and here you'll find the bankruptcy procedures.

While most people think of bankruptcy in terms of the popular Chapter 7, which is a complete liquidation of debt, people with steady paying jobs have another option. Chapter 13, also called the wage-earners plan, is where the attorney comes up with a repayment plan, based upon a bankruptcy judge's determination of the total debt. Creditors file claims with the court, and state what they want. The judge determines the best fair amount, and it is added to the plan. While this is going on, the judge invokes the "automatic stay", which means creditors may NOT contact
the debtor directly to collect a debt.

A court hearing is necessary, to approve all of the particulars of the case, and debtors are required to attend and answer questions of the Trustee. The Trustee, appointed by the federal government, will oversee the plan and disburse money fairly. The hearing is also when creditors may file objections to the plan with the judge, if they think the plan is unfair to them. In most cases, this is not standard, as most of these issues are worked out in advance.

After the plan is approved, the Trustee will garnish the wage-earners paycheck with the specific monthly amount determined by the plan. This monthly amount MUST take into account the living expenses of the wage earner. Also during this time, the debtor may NOT incur any debt. This means credit cards, and home/auto purchases or sales. In the case of the home or auto purchase, the debtor may incur this debt, if it approved by the court. The plan lasts up to 5 years, dpending on the amount of debt, and during this time, the debtor must adjust to living only on cash and wages, not credit.

After all plan payments have been made, the Trustee will notify the court, and notify the wage-earners workplace to end garnishment. The court will require the debtor to complete 2 hours of financial management training, which can be taken online. Upon completion of the training, the court will issue a final discharge of the case, and the case is closed. The wage-earner will then begin to build their credit ratings back, which is not as hard as it may seem.

But that's a topic for a different article.