Understand How Chapter 13 Bankruptcy Works

Many people facing debt problems are curious about how Chapter 13 bankruptcy works, especially those who do not qualify for Chapter 7 bankruptcy. When exploring your debt relief options, it is important to work with an experienced team of lawyers who can help you understand your rights and options.

At Prescott Pearson & Tande, PA, have been helping clients find debt relief through Chapter 13 bankruptcy and other options for more than 40 years. Our attorneys have the experience to help you find the debt relief options you need.

How Does Chapter 13 Bankruptcy Work?

A Chapter 13 bankruptcy has many similarities to a Chapter 7 bankruptcy, although it takes three to five years to complete rather than several months. There are specific exemptions that allow a debtor to protect assets in the bankruptcy process and at its conclusion. The day the bankruptcy is filed, the automatic stay goes into effect. Many types of debt can be discharged at the end of a Chapter 13 bankruptcy. Some types of debt (such as student loans, child support and most taxes) cannot be discharged in a Chapter 13 bankruptcy, but the definition of dischargeable debts is broader in a Chapter 13 than in a Chapter 7.

Once you have determined that you are eligible to file a Chapter 13 bankruptcy and it is the right decision for your circumstances, you will need to gather documentation of all your debts, assets and income. Once you have paid your attorney's fees and court fees, you will be ready to file a petition with the bankruptcy court serving the area of your residence.

Submit Lists and Documentation With a Bankruptcy Petition

Along with your bankruptcy petition, you will need to submit the following to the bankruptcy court:

  • Lists of assets and liabilities
  • A statement of monthly net income and any anticipated increase or decrease in income or expenses in the near future
  • A record of any 529 tuition savings account
  • Proof of current income, including pay stubs for the past 60 days
  • A statement of your expenditures, including a detailed list of your monthly living expenses
  • Lists of outstanding contracts and unexpired leases
  • A comprehensive statement of your financial affairs
  • A certificate verifying credit counseling
  • A copy of any debt repayment plan developed through credit counseling
  • A copy of your most recent tax return
  • A list of all creditors and the debts that you are responsible for
  • A list of all your property
  • Court filing fees

A Trustee Will Evaluate and Administer Your Case

Once the court accepts your petition, an impartial trustee will be appointed to evaluate and administer the case. The trustee's duties will include collecting payments from you over a three- to five-year period and distributing proportionate amounts of it to creditors.

The Automatic Stay

Filing the Chapter 13 bankruptcy petition will put the " automatic stay" into effect. This will prohibit creditors from harassing you or seeking to collect on the debts for the duration of your bankruptcy process. If a Chapter 13 bankruptcy is filed in time when a home is under the threat of foreclosure (before the home is sold by the bank), the automatic stay can stop foreclosure.

341 Creditors' Meeting

A few weeks later, the debtor must attend a meeting of creditors with the Chapter 13 trustee. Creditors rarely appear at such a meeting. The debtor will answer questions of the trustee under oath. After the meeting of creditors, a hearing on the debtor's Chapter 13 repayment plan will be scheduled.

See other pages of this website for a description of the Chapter 13 plan and confirmation hearing as well as the Chapter 13 discharge.

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Contact a Twin Cities Bankruptcy Attorney for a Free Consultation Today

  • Minneapolis-St. Paul Area: 651-968-8096
  • Minnesota Toll Free: 888-366-0827

To learn more about how Chapter 13 works, call our bankruptcy lawyers or email us today. We offer free initial consultations, quality services at competitive rates and effective representation statewide.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.