The process for filing Chapter 13 was radically altered when new laws took effect under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Although individuals are allowed to file without legal counsel, going through the process alone could present harsh consequences.

Prior to filing Chapter 13 bankruptcy debtors should take time to become familiar with BAPCPA guidelines. While entering into personal bankruptcy can provide temporary debt relief, it may not be the best financial decision.

Chapter 13 involves reorganizing debts in order to retain valuable property such as real estate. Once individuals file their petition a 341 creditor meeting is scheduled to develop a payment plan.

BAPCPA guidelines require all petitioners to repay a portion of debts through establishing Chapter 13 payments. To determine how much debt is due, the courts utilize a tool known as the \’means\’ test. Although mathematical equations are complex, the means test compares debtors\’ pre-tax income to their states\’ median income.

When petitioners earn more than median levels they are required to file Chapter 13 unless special circumstances exist that make them eligible for Chapter 7. Often referred to as \’liquidation bankruptcy\’, Chapter 7 involves selling assets to pay off creditor debts. Once asset-depletion occurs, remaining debts are discharged and debtors are no longer responsible for payment.

After the 341 meeting occurs, creditors, petitioners, and legal counsel appear in court to present the plan. Petitioners are required to remit payments to the Trustee within 30 days of court appearance. Payments are usually self-pay, but the judge can order direct deposit via payroll deduction.

Prior to receiving bankruptcy approval, debtors must engage in credit counseling through agencies approved by the U.S. Trustee. Counseling can occur up to 180 days prior to filing petition.

Credit counseling can be beneficial on many levels, so debtors should actively participate in the program. In some instances, counselors can negotiate creditor payment plans that allow debtors to avoid bankruptcy altogether.

Oftentimes, bankruptcy is caused due to poor money management skills. Certainly, there are times when insurmountable debt is caused by long-term unemployment, death of a spouse, or chronic health issues. In fact, nearly half of all bankruptcies stem from medical debt. However, just as many stem from overextending financial means.

Credit counselors can help debtors establish a household budget to ensure compliance with Chapter 13 payments, while meeting monthly expenses. They can provide guidance and help debtors establish strategic plans to pay off credit card debt, student loans, past due taxes, and contribute to a savings plan.

Bankruptcy payment plans can be in place for up to five years. Debtors must remain in compliance with payments or face having their petition dismissed. When debtors miss payments, both the Trustee and creditors can request dismissal. This is referred to as failing out of bankruptcy and has serious consequences.

Alone, bankruptcy is devastating to credit scores. Failing out of bankruptcy is a double-whammy that nearly guarantees debtors will not qualify for credit for a long time. If they do obtain financing, chances are they will pay exorbitant interest rates.

Depending on debt levels, debtors might find relief through bankruptcy alternatives such as debt consolidation or debt settlement. Debt consolidation involves taking out a home equity loan using real estate as collateral. Debt settlement involves negotiating reduced payoffs with creditors.

Bankruptcy alternatives are not risk-free, so it is wise to thoroughly research each option. Conducting adequate research can help debtors decide if filing Chapter 13 bankruptcy is the financial choice.

Author Bio: Anyone considering filing Chapter 13 bankruptcy should take time to weigh the pros and cons. This decision is life-altering and has long-term effects. Real estate investor, Simon Volkov has written extensively on the subject and offers a comprehensive article library at www.SimonVolkov.com.

Category: Finances
Keywords: filing chapter 13 bankruptcy, bankruptcy alternatives, fail out of bankruptcy, chapter 13 payments