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How Chapter 13 bankruptcy works

Financial difficulties can happen to anyone. Job loss, a medical crisis or even accidental mismanagement of income can cause a person financial hardship. For anyone in Louisville and beyond, filing a Chapter 13 bankruptcy case can give a person time to regroup and create a plan to pay off creditors and gain a fresh financial start.

Unlike a Chapter 7 bankruptcy, where a person asks for all of his financial debt to be erased, a Chapter 13 bankruptcy is a restructuring of personal debt through a repayment plan. This means that a person would not be required to sell or return personal assets such as a home or car, but instead would be able to keep these items for the duration of the plan. At the end of the repayment plan, all debt will be considered paid in full and the person will have a clear credit record.

To be approved for a Chapter 13, individuals have to file for bankruptcy with the court, which will include a complete list of assets and debts, all income and a proposed repayment plan. Then a "means test" will be administered. This test examines the person's assets, the amount of debt and the person's income. If the person has enough income to support the repayment plan, a court can allow the bankruptcy to proceed. Because creditors might be paid only a fraction of what they're owed, they are allowed to object or make a counter offer, This is done at the meeting of creditors which occurs after a person submits their repayment plan.

Once the plan is approved, the person makes the payments on the plan to a bankruptcy trustee, for the allotted time, generally three to five years. Once all payments have been made, the financial obligations to the court and creditors are considered fulfilled. Those facing financial hardship can seek advice from an experienced legal professional who can help them decide the best type of financial relief to pursue.

Source: FindLaw, "Chapter 13 Bankruptcy," accessed June 16, 2016

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