Personal bankruptcy often called the debt management option of last resort, according to the U.S. Federal Trade Commission (FTC). However, bankruptcy is the only debt management option which provides people with a way to stop creditors such as debt collection agencies, credit card businesses and mortgage companies from collecting on the debt. Debt collection typically occurs when creditors file lawsuits against people, try to garnish their wages or take their homes. When individuals file chapter 13, they stop debt collections in their tracks.
What Is Chapter 13?
Under chapter 13 bankruptcy, people repay creditors through repayment plans. The U.S. Bankruptcy Court approves the terms of repayment such as the amount of monthly payments and the timeframe. Typically, individuals’ repayment plans last for 36 to 60 months. During that time, they send their monthly payments to the bankruptcy trustees. The trustees then forward the payments to creditors.
Automatically Stay Stops Debt Collections
Debt collections are immediately stopped because chapter 13 has an automatic stay. The automatic stay requires all creditors to cease all debt collection activities. Creditors can’t even call people or send letters about the debts. The stay remains in effect as long as the chapter 13 is active.
Repayment Plans Requires People to Repay Debts In Their Entirety
Some creditors are entitled to receive all the money they are owed. These creditors include secured debts, child support and tax debts. However, unsecured debts like credit cards can be repaid anywhere from 0 to 100 percent, according to Nolo.
Chapter 13 Bankruptcy Cases Can Be Dismissed
People must make sure that they don’t miss any monthly bankruptcy payments or the cases can be dismissed. Also, if any creditors are current such as mortgage companies, people must keep all current debt satisfied. In other words, if people file chapter 13 to avoid foreclosure, they must keep making regular monthly payments. If they don’t, then the bankruptcy cases can be dismissed.
Obtain Legal Advice
Whether people are considering bankruptcy or preparing to file for chapter 13, they should seek legal counsel. Bankruptcy attorneys can explain the process and contact creditors once the cases are filed. Also, the attorneys can defend individuals against creditors trying to fight the automatic stay. The only recourse for creditors is to try to lift the automatic stay by petitioning the bankruptcy court. However, bankruptcy attorneys can try to prevent that from occurring.
