Chapter 13 Bankruptcy Rules: What You Should Know Before
By: Jane C. Smith | LRL Editor
In contrast to Chapter 7
bankruptcy, Chapter 13 bankruptcy
rules provide a less extreme
option for consumers who do not have the capacity to pay for all their debts. Both debtor and creditor have
advantages under Chapter 13. Debtors avoid the stigma of Chapter 7 liquidation while creditors may recover
more debts than they would be able to under the latter.
bankruptcy rules allow repayment of debts owed by natural persons. If all parties in a bankruptcy
arrangement reach an agreement on the terms, the court supervises the repayment plan. A trustee ensures that
payments are made to the creditors. Only the court appoints the trustee.
Payments are made directly to the trustee and not to the creditor.
Depending on the terms agreed upon, repayment can be done in a weekly, monthly or bimonthly format. It is the
trustee's obligation to evenly distribute the payment to the various creditors. More often than not, the
total amount of debt owed to all creditors has been already reduced or restructured to help the debtor pay
all of his or her obligations.
It is the trustee's responsibility to assess the real financial
capability of the person filing for bankruptcy. This is important in the restructuring of the total amount of
debt and the repayment schedule to be set. The trustee analyzes the debtor's monthly income as compared to
monthly expense to determine the purchasing power or the amount the debtor would be able to pay to all
bankruptcy rules require that the person or business adhere to the repayment schedule set by the court.
However, this is only suitable for individuals with stable and regular income. If you are a freelancer or if your
job is seasonal in nature - meaning your have peak and off peak seasons - then Chapter 13 is not the form you
should consider. The amount of asset s a debtor has is not relevant. Rather, the question is whether the debtor has
stable, regular income such as salary, wages, social security, etc.
The most critical step
regarding Chapter 13 bankruptcy
rules is making sure you meet
all your payments on time according to the set repayment schedule. If you do not abide by it, the case and
the entire court record can possibly be thrown out. If this happens, then the creditor has the full right to
demand full payment for the debts still owed.
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