How Chapter 13 works

Persons struggling with financial situations may discover they cannot pay their creditors. Rather than continue with their current insurmountable debt situation, Louisiana debtors might file for bankruptcy in federal court. For many, Chapter 13 is the appropriate bankruptcy category for them.

Chapter 13 bankruptcy

Another name for Chapter 13 bankruptcy is wage earner bankruptcy. The category receives this description because it involves the debtor making payments to creditors as part of a payment plan. The debtor likely has sufficient income to make agreed-upon payments. Another category of personal bankruptcy, Chapter 7, does not require payment plans, but debtors would liquidate significant assets to pay creditors. Some filers seek Chapter 7 but do not qualify and file for Chapter 13 instead.

With Chapter 13, the debtor submits a payment plan to the court. The court may accept or reject the proposal, and creditors could have a say in court about it. Once the court approves a payment plan, the debtor must make the established payments timely. Failure to make required payments may result in the bankruptcy’s dismissal, and collection actions could resume.

Chapter 13 filings

With the Chapter 13 payment plan, the debtor may pay a reduced amount on specific debts owed. However, some debts could face discharge, meaning the debtor no longer has any obligation to pay. Typically, unsecured debts, such as credit card balances, face discharge.

Filers must declare all debts in court to benefit from bankruptcy protections. Not all debts become subject to bankruptcy protections or discharges. Child support and certain taxes owed are two obligations that won’t likely go away in bankruptcy.

Payment plans usually run for three to five years. The duration provides an opportunity to make a fresh start, and debtors may use the period to rethink their budgeting and financial approach toward personal expenses.