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How a Chapter 13 bankruptcy

Washington, D.C. residents may want to know how Chapter 13 bankruptcies work. A Chapter 13 bankruptcy differs from other types of bankruptcies in that it allows a person to reorganize or restructure their debts so that the debts can be repaid over a specific time period, usually three to five years. Unlike a Chapter 7 bankruptcy, a Chapter 13 is not a liquidation of debts.

Chapter 13 filings begin with a petition to the local bankruptcy court. The petition must include full details concerning the debtor's financial condition, including income, assets and liabilities and income tax returns. The debtor must have completed a credit-counseling course offered by an approved provider within the 180-day period immediately preceding the filing. Any repayment plan developed during the course must be submitted along with the filing.

Once the petition is submitted, a trustee will be appointed who will issue an automatic stay, preventing creditors from attempting to collect a debt. The trustee will meet with the debtor and creditors in order to evaluate the submitted repayment plan. Once a plan is approved, the trustee will act as administrator, collecting payments from the debtor and distributing them to the creditors until the debts are paid off. A Chapter 13 filing often allows a debtor to keep their home and other non-exempt property and is sometimes useful in stopping foreclosure proceedings.

When a person is unable to meet their current financial obligations but might be able to do so over a three- to five-year time period, their best option for obtaining relief may be to file for bankruptcy protection under Chapter 13. An attorney who has experience in bankruptcy filings could be helpful in preparing the necessary paperwork and representing the debtor in proceedings.

Source: US courts, "Individual Debt Adjustment", August 20, 2014

Source: US courts, "Individual Debt Adjustment", August 20, 2014

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