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The importance of a Chapter 13 plan

 

You have finally decided that your debts are more than you can handle and you need to file for protection under the Bankruptcy Code. And you have done some research and you believe that because you have a home in the Milwaukee area and a vehicle that you owe money on and want to keep, you should file a Chapter 13.

You walk into the office a bankruptcy attorney. What's next? How will the process unfold? Well, if you have a typical bankruptcy and no litigation develops, the process is relatively straightforward.

 

You first sit down with the bankruptcy attorney or members of their staff and fill out all of the required financial schedules. This information is used to create a Chapter 13 plan that will enable you to repay a portion of your debts and discharge some.

The exact format of your plan will depend on the types and amounts of your debts, your necessary life expenses and your income. The Chapter 13 plan functions much like a carefully calculated budget and will govern all of your spending habits for the length of the plan, usually three or five years.

One of the most important elements of the Chapter 13 plan is that it must be realistic and viable. You must be able to afford your monthly payments, as those payments fund the trustee's payments to your creditors.

If you miss payments to the trustee, the trustee could move to dismiss your bankruptcy. The danger with a dismissal is that all of your bankruptcy protections expire with dismissal, and creditors are free to garnish your paychecks or repossess secured assets that are in arrears.

If something happens that makes it impossible for you to maintain your payments, you must contact your bankruptcy attorney and determine if you can to modify your Chapter 13 plan payments. This must be done with the approval of the bankruptcy court and could be subject to objections by your creditors.

Once your plan is confirmed, you should never change the amount of your payment without prior court approval.

Source: uscourts.gov, "Chapter 13 - Bankruptcy Basics," site accessed October 2015

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