Sometimes financial woes are too much to handle. Of course, check with consumer credit counseling services to try to work out your debts before filing for chapter 7 or chapter 13 bankruptcy. Be sure you have all the information you need about bankruptcy before making this important decision. Then speak with a bankruptcy lawyer about filing for chapter 13 bankruptcy.
Like chapter 7, chapter 13 bankruptcy requires you have a bankruptcy lawyer in your state. Bankruptcy laws vary slightly from state to state, and you should have a lawyer in your own state that is familiar with the way bankruptcy laws and bankruptcy court work in your area.
This lawyer will help you identify your creditors when you file for chapter 13 bankruptcy. Similar to filing for chapter 7 bankruptcy, you must identify all you creditors, or the courts require you pay a re-filing fee to put more creditors on your list. When you file for chapter 13 bankruptcy and file your list of creditors, your lawyer will send your creditors a cease and desist letter, which will force the creditors to continue any further contact with your lawyers, rather than with you.
Chapter 13 bankruptcy is the first choice in bankruptcy filing and is not looked on as severely because you make a valiant effort to pay back some of your creditors. They have the chance to collect at least some of your debts.
Chapter 13 bankruptcy is not like chapter 7, in which you liquidate your assets. With chapter 13 bankruptcy, you look at your debts and decide which debts to “charge off” and which you can pay. Generally, when consumers file for chapter 13 bankruptcy, they choose to continue paying on secured loans so creditors do not collect collateral.
Then comes bankruptcy court. For chapter 13 bankruptcy, you will go to bankruptcy court with your attorney and make payment arrangements with your creditors and the judge. Many times in chapter 13 bankruptcy cases, the judge will simply have unsecured debts “charged off.” You will not be responsible for paying back these debts. Other instances in chapter 13 bankruptcy require payments so you can keep your collateral, which you set up on secured loans, but they may be set at lower interest rates and lower principle. For example, a judge could say you only have to pay $1,000 on a $2,000 loan at 1% or even 0% interest if you file chapter 13 bankruptcy, rather than paying the full amount back at your regular interest rate.
Judges can also rule for a “cram down” in a chapter 13 bankruptcy case. This will make creditors reduce the amount of an auto loan to simply book value. This makes creditors careful to only loan the “blue book” value of a car in the first place.
Also, when consumers go through chapter 13 bankruptcy, many creditors feel they get “stung,” so they make the consumer close checking accounts, savings accounts, and discontinue all business. In chapter 13 bankruptcy, consumers usually choose to keep at least one financial institution to pay back slower so they can keep doing business and keep their accounts open.
If at anytime during the payment process after chapter 13 bankruptcy ruling, the consumer cannot fulfill payments, he or she can re-file for chapter 7, but chapter 7 is complete liquidation, so it is best to try to complete the course set out by the chapter 13 bankruptcy. Also, one last word of caution, bankruptcy stays on your credit report for about 10 years or more, so be absolutely positive before making the final decision to file for bankruptcy.
By D. Blair Thompson