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Understanding How Chapter 13 Bankruptcy Works

Unlike a Chapter 7 bankruptcy, which discharges the majority of your debt obligations and requires you to give up a portion of your assets, a Chapter 13 bankruptcy lets you keep your property by paying back a portion of your debt. This kind of bankruptcy petition is sometimes referred to as reorganization bankruptcy because you still remain financially responsible for a portion of your debt. In order to qualify for a Chapter 13 bankruptcy petition, you need to show the court that you have a high enough income to meet your new monthly payments.

Adding Up the Bills

Creating a repayment plan

If your total debt burden is too high or your income is too low, then Chapter 13 might not be your best bankruptcy option. Before you file your petition, you will need to attend credit counseling from United States Trustee’s office approved agency. You will then need to work with your bankruptcy lawyer to create a detailed plan of how you will use your current income to still pay for a portion of your owed debt.

Determining how much to pay

There are certain debts called priority debts that you will need to repay first under a Chapter 13 petition. These debts include child support, alimony, owed employee wages, and some tax obligations. Next, you will need to account for your secured debt, which are debt obligations backed by a particular asset such as a house or a car.

Meeting your monthly payments

You will only qualify for a Chapter 13 petition if the court determines that you have sufficient monthly income to pay back a portion of your debt. However, if an unexpected event such as job loss occurs six months into the plan and you fall behind on payments, your trustee might modify your plan or the court may discharge the remainder of your debts.

Cutler & Associates, Ltd. can help you determine if you qualify for a Chapter 13 bankruptcy petition. You can reach our Aurora office by calling (847) 868-2265. Our attorneys have more than 25 years of combined experience handling consumer bankruptcy cases.

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