How does the Chapter 7 Bankruptcy process work?
Full Question:
Answer:
Under Chapter 13, all debts are combined and the debtor advises the court how much of the total debt he is able to pay. The court will accept repayment percentages as low as ten percent of the total debt, though plans that propose repaying at least seventy percent are recommended. The court discharges, or legally forgives, that portion which cannot be repaid, and the debtor begins making payments on the remainder. These payments must be finished at the end of three years, though extensions can be granted.
The debtor has enormous flexibility in preparing his plan; the main criterion is its workability. The advantages to the debtor are many, and include the retention of unsecured property, the fact that the consent of the creditors is not necessary, and the fact that one hundred percent paybacks are not necessary. Secured creditors (those who have a lien on certain property), have limited remedies. If they do not accept the plan, they can only repossess a secured item for the present market value of the item.
The unpaid balance on the original contract or promissory note then becomes an unsecured debt. Since the fair market value of most items drops drastically one second after the purchase, most secured creditors will probably be forced to accept the plan in the hope of getting a larger return. The debtor even has a chance to retain secured property.
Another advantage is that the mere filing of the petition stops all collection efforts by creditors. Finally, there is no waiting period to file another Chapter 13 petition after the finish of the first one. Certain debts, however, are not dischargeable under Chapter 13 proceedings. A Chapter 13 cannot discharge alimony, child support, guaranteed student loans, and taxes.
