Chapter 13 Bankruptcy
When you file a Chapter 13 bankruptcy, or ‘reorganization’, you are making a plan to repay all of your debts. This is unlike Chapter 7 bankruptcy, where you are asking that your debts be forgiven. In chapter 13, secured debts are paid before unsecured debts. If you take the full three to five years to pay the secured debt, the unsecured debt holders will not receive any money and will be discharged.
In Chapter 13 bankruptcy, you do not have to surrender your assets to the trustee like you do in Chapter 7 bankruptcy. The trustee will figure out how much you need to pay your monthly debts and living expenses. Any remaining money from your monthly income will be used to pay down your debt. This money is given to the trustee every month. the trustee then distributes the money to the proper creditors. It is very important that you make this payment every month on time. Missing just one month can result in termination of the court agreement.
You will also be giving up one half of your income tax refund every year for three to five years. The income tax money is applied to the unsecured debts that may not receive any money otherwise.
