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There are five main types of bankruptcy cases set forth in the United States Bankruptcy Code. Here we discuss Chapter 13 Bankruptcy Laws which is one of the 2 types of bankruptcy most commonly used by individuals.

Click here for information on Chapter 7 Bankruptcy.

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Chapter 13 Bankruptcy Laws

In contrast to the Chapter 7 Bankruptcy, Chapter 13 bankruptcy laws (a debt repayment type of bankruptcy), enable the debtor to keep certain assets, such as a house or a car, by making payments to the trustee and/or the secured creditor over time.

It is different from a Chapter 7 because it allows the debtor to submit a "plan" to the trustee that sets for a payment schedule to creditors over time, usually three (3) to five (5) years.

The bankruptcy court must hold a confirmation hearing and determine whether the plan should be confirmed or needs modification in order to be confirmed.

The Bankruptcy Chapter 13 debtor typically remains in possession of the property of the estate and makes payments to creditors through the Chapter 13 trustee. The payments are based on the debtor's anticipated disposable income over the life of the plan (disposable income being the debtor's income minus the debtor's allowed expenses).

Unlike Chapter 7, under Chapter 13 bankruptcy laws the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received.

The debtor is protected from lawsuits, garnishments, and other creditor action while the plan is in effect. The discharge is also considerably broader (i.e., more debts are eliminated) under Chapter 13 than the discharge under Chapter 7.

Note that with the amendment to the bankruptcy laws in October, 2005, those debtors whose income exceed their state's "median income" may no longer be qualified to file a Chapter 7 case - and may be required to look at Chapter 13 Bankruptcy laws for relief from debt.

Each state has a "median state income" (and this number is based upon the number of persons living in the household) - if the debtors' total household income is below the median number (or if their allowable expenses bring the debtors' income below a certain level), the debtors can continue to seek a discharge of their debt through the Chapter 7 process.

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1. Release and Settlement Agreement
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4. Credit Inquiry Information and Removal Letters
5. Letter to a Credit Report Agency That Co-Mingled Information
6. Letter to Credit Reporting Agency - Dispute Letters
7. Debt Collection Dispute Letter Packet
8. Good Will Adjustment to Remove Late Payment
9. Notice of Harassment to Debt Collector/Agency/Attorney/Firm
10. Negotiating a Settlement With Utility, Cable, or Satellite Companies
11. Letter to Settle Past Due Account
12. Negotiating Settlements with Creditors for Separation and Divorce Issues
Plus: Letter to Update Accounts or Debts That Were Discharged in a Bankruptcy

Common Mistakes Before Bankruptcy

There are many common mistakes that are often made before and during the bankruptcy process. Here is a short list of them:

  • Repaying money to relatives
    If you repay a relative anytime during the year prior to filing bankruptcy, the trustee can sue the relative to receive the money back to distribute to all of your creditors equally.

  • Not listing all creditors
    Make sure to list every single person or company you owe money to. Only if this list is completely accurate and complete will those debts be discharged at bankruptcy.

  • Transferring Assets
    Shifting assets to your children's name or a relative just prior to filing for bankruptcy is not permitted.

  • Concealing Assets
    Bankruptcy laws require full disclosure of all assets. The FBI fraud division, IRS auditors, and the Executive Office of the U.S. Trustee investigate bankruptcy filings. They will eventually find your assets even if you do not have them listed in your paperwork. It is a federal crime, a felony, to commit bankruptcy fraud. Do not take chances.

  • Credit Consolidation
    Be careful about credit consolidation companies. The airwaves are inundated with consolidation companies urging their solutions as a way to "avoid bankruptcy." However, even if you negotiate lower payments or a restructure your debt outside of bankruptcy, your credit score is still adversely affected just as with bankruptcy.

    You also should be aware that there could be income tax liability. In addition, don't be fooled, "not-for-profit" doesn't mean "free." These organizations are typically capitalized by banks and the credit card industry because they want to try to collect as much money from you as possible.

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