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What is Chapter 13 Bankruptcy and How Does it Work?


Chapter 13 bankruptcy enables consumers in Ohio and most other states to pay some or all of their debts over a period of three to five years. If a consumer makes less than the state's median income, the repayment plan generally lasts for three years. If the consumer makes more than the state median income, the plan is generally for five years. During the repayment period, creditors cannot start or continue any collection efforts.

A Chapter 13 bankruptcy petition may be filed with a bankruptcy court where the consumer lives or is domiciled. At the time of the filing, the consumer must show proof that he or she has gone through an approved credit counseling course. The consumer will then provide the court with a list of assets and liabilities as well as a list of income and expenses. A tax return from the most recent tax year will also need to be provided to the trustee overseeing the case.

Those who are married must provide income, debt and asset information for their spouses. This is true whether or not a couple is filing jointly for bankruptcy. This is done to allow the trustee to look over the financial position of the entire household. When the bankruptcy is filed, creditors will be notified and a stay will be ordered.

Filing for Chapter 13 bankruptcy may be an effective way for consumers to reorganize their finances. In addition to the consumer having lower monthly payments, creditors are typically unable to take collections or other actions against the consumer. This may make it easier for the consumer to focus on repaying the debt instead of worrying about collection calls or letters. Talking to an attorney may be beneficial to those who are looking for a better way to manage their debt.

Source: United States Courts, "Individual Debt Adjustment", September 19, 2014