Will Debt Collections Continue if a Chapter 13 Bankruptcy is filed?

No. Debt collection can’t continue once people file chapter 13 bankruptcy cases. During chapter 13, a legal process, which allows individuals to repay their debts, they are provided some legal protection. In fact, one extremely important law under bankruptcy prohibits debt collection.

Debt Collection Is Stopped Because of An Automatic Stay

The term automatic stay refers to the fact that creditors aren’t allowed to start debt collection such as wage garnishments, lawsuits or foreclosures proceedings. If they do, they are in trouble with the U.S. Bankruptcy Court. In addition, the creditors can’t continue debt collection activities they’ve already started. Again, the creditors will be in trouble with the Court if they continue. Therefore, an automatic stay ensures that all and any debt collection activities immediately cease. For example, if someone files a chapter 13 a day before their home is up for foreclosure sale, the creditor must take the home off the market. Thus, the person is allowed to keep their home. The automatic stay remains in place for the life of the bankruptcy case.

Individuals Have To Qualify For Chapter 13

Whether or not people can file for chapter 13 depends on their income. Traditionally, chapter 13 is for wage earners or people with regular income so they must qualify to file. People can figure out if they are eligible through the U.S. Bankruptcy Court’s means test. The means test consists of comparing their income, after their debts have been paid each month, to their state’s median income. The median income varies according to state and the size of individuals’ household. When people fail the means test, they are eligible for chapter 13. Failing the means test simply denotes that the people have enough disposable income to repay their debts.

Chapter 13 Consist Of Making Monthly Payments

The repayment plan varies according to the amount of money people must repay. However, the repayment plans are typically from three to five years before they are completed.

Seek Legal Advice When Considering Filing Chapter 13

Bankruptcy lawyers can help people with filing for bankruptcy. They can also help if people pass the means test which indicates they have enough money to file chapter 7. Although chapter 7 includes an automatic stay, it doesn’t provide legal protection against foreclosures. Thus, bankruptcy lawyers can go through people’s finances and figure out if they have enough money to file for chapter 13.