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What Is Chapter 13 Bankruptcy?

Between 2005 and 2017, Americans filed 4.1 million Chapter 13 bankruptcy petitions. In Maryland, as of March 31, 2020, there were 17,255 filings. The idea of having to go through bankruptcy may seem embarrassing to some, but being able to lower one’s debt may take away a good deal of stress.

Chapter 13 affects future credit but may relieve anxiety when creditors have to stop calling and sending past due notices and collection letters. This type of bankruptcy can provide filers a chance to restructure and alleviate some of their debt.

The Wage Earner’s Plan

Chapter 13, also known as the wage earner’s plan, allows people to repay their debts as long as they have a regular income. Under this plan, individuals may make payments to creditors over a three- to five-year period. During this time, companies cannot start or continue collection proceedings against the debtor.

Individuals cannot file a Chapter 13 bankruptcy if there was a prior bankruptcy dismissal in the preceding 180 days because they failed to appear in court.  Also, debtors cannot file if they received credit counseling 180 days before filing. There are exceptions for emergency situations.

The Filing Process

Chapter 13 begins when an individual files a petition with the court. A bankruptcy lawyer Rockville MD can provide a debtor with the correct documents to file and explain the bankruptcy procedures. Along with the petition, the individual must include the following:

  • A schedule of assets and liabilities
  • A list of contracts and unexpired leases
  • A statement of all financial affairs
  • A current listing of all income and expenses

In addition, debtors must give the court several comprehensive lists:

  • Creditors and amounts due
  • Income information about earnings and pay schedule
  • All property
  • Living expenses such as food, clothing and utilities

Individuals have to pay administrative and filing fees. The court may allow debtors to pay in installments in certain circumstances.

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