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How Does a Chapter 13 Bankruptcy Work?

Nov. 21, 2019

In Oregon and around the nation, countless people have continued to struggle with how to stay on top of their debt, despite the relatively healthy and booming economy over the last several years. Whether due to excessive out-of-pocket medical costs, job loss, divorce or some other factor, many consumers have found that filing for bankruptcy offers them the chance to start over and be free of their debt.

There are two main forms of consumer bankruptcy, the Chapter 7 plan and the Chapter 13 plan. Most people are familiar with the Chapter 7 bankruptcy plan, but few understand how a Chapter 13 plan works. As explained by the United States Courts, a Chapter 13 plan is essentially a form of organized repayment. People must have sufficient income to qualify for these plans as they are required to make monthly payments to a trustee for a period of time lasting between 36 and 60 months.

The monthly payments are used by the trustee to in turn make payments to creditors. The amount eventually repaid to creditors may be less than what was originally owed and is determined at the outset of the bankruptcy plan. Consumers do not lose their assets in a Chapter 13 plan. Mortgages are not involved in these plans, but the filing of a Chapter 13 plan does put an automatic stay on foreclosure proceedings.

This information is not intended to provide legal advice but is instead meant to give people in Oregon who are struggling with unmanageable levels of debt an overview of how the Chapter 13 bankruptcy process works so they may begin to assess if this type of bankruptcy plan may be able to help them.