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What Happens After I Declare Chapter 13 Bankruptcy

Deciding to declare Chapter 13 bankruptcy can feel a bit overwhelming, but if you understand what happens after chapter 13, you can start to have some peace of mind regarding your debts.

This type of bankruptcy - often called a "wage earner’s plan" - helps you to reorganize your debts and protect your assets. It lets you create a manageable repayment plan that typically lasts three to five years.

While the whole process is structured, if you know what to expect after filing, it will help you stay on track while you're rebuilding your financial health.

Life Immediately After Filing Chapter 13

Immediately after you file your Chapter 13 bankruptcy, an automatic stay is applied to your current debts which prevents creditors from taking further collection actions against you and gives you some wiggle-room to better plan your financial future.

Benefits of the Automatic Stay

The automatic stay is a great tool that gives people in debt some room to breathe. It means creditors can no longer call you, send collection letters, or initiate lawsuits.

The automatic stay is a legal protection that gives you breathing room to focus on your repayment plan. For example, if your car was at risk of repossession, the automatic stay can temporarily halt the process, and let you include it in your repayment plan.

Filing Your Repayment Plan

You’ll work with the bankruptcy trustee to submit a repayment plan detailing how you’ll pay your creditors.

This plan must allocate funds to secured debts, like a car loan or mortgage, and provide for unsecured debts, such as credit card balances, based on what you can afford.

It’s important to follow the timeline strictly because missing deadlines could lead to a dismissal of your case.

After the initial filing, creditors will review your repayment plan and raise objections if see any.

Addressing these concerns promptly ensures a smoother approval process.

Managing Your Finances During Chapter 13

The success of your Chapter 13 bankruptcy will depend on how well you manage your finances and adhere to your repayment plan.

Sticking to the Budget

In a Chapter 13 you're required to live on a strict budget so you can meet repayment obligations. You'll have to prioritize essential expenses like housing, utilities, and groceries and eliminate unnecessary spending.

For instance, you may need to cut back on dining out or cancel some subscription services so you can allocate funds toward your plan.

Making Regular Payments

You'll also have to be disciplined enough to make your regular payments. Your payments to the trustee are critical to a successful Chapter 13 bankruptcy.

These payments - often made monthly - are distributed to creditors based on the terms of your plan. If you miss even one payment, it can jeopardize your bankruptcy case so setting up automatic payments is the best way to ensure you stay consistent and avoid penalties.

Moreover, during this period it’s wise to keep records of payments and any communication with the trustee or creditors which are helpful if disputes arise. For email, just create a folder for all correspondence in your inbox, and for payments, take screenshots and file them, or get paper receipts from your bank.

What Happens to Your Credit After Chapter 13

Unfortunately, Chapter 13 bankruptcy affects your credit, but it has to be noted that it also provides an opportunity to rebuild financial stability over time. As time passes and you continue to make your payments and pay other monthly expenses, you'll be building up to the day your bankruptcy is removed from your credit report.

The Impact on Your Credit Report

A Chapter 13 bankruptcy stays on your credit report for seven years from the filing date. Even though this can lower your credit score, creditors may view you as less risky compared to someone who has defaulted on debts without a repayment plan. Filing the Chapter 13 and setting up a repayment plan tells creditors that you took responsibility for your debts and always intend to pay creditors back.

The good news is some lenders may actually offer you a secured credit card to help you rebuild credit.

You Can Rebuild Your Financial Standing

After completing your repayment plan, you can focus on rebuilding your credit. You can start by opening a secured credit card or taking small, manageable loans. Paying bills on time and keeping credit utilization low are also key steps.

Furthermore, regularly reviewing your credit report helps you find and dispute any inaccuracies that could harm your score.

In total, completing your Chapter 13 plan demonstrates your responsibility and can make creditors more willing to extend credit to you in the future.

Adjustments and Challenges During Chapter 13

Because life circumstances can change, it’s important to address any challenges that may arise during your repayment plan. For example, if you experience a job loss, a medical emergency, or a significant increase in living expenses, you may need to request a modification to your repayment plan to avoid falling behind.

Creditors will generally be willing to work with you to modify your plan if you can demonstrate a legitimate change in circumstances and propose a reasonable adjustment to your payments.

Modifying Your Plan

If your financial situation changes, such as losing a job or incurring unexpected medical expenses, you may request a modification of your repayment plan. For instance, you may propose a reduced payment amount based on your current income.

Modification requests are not always guaranteed but the court will review your request and determine whether a modification is appropriate based on the specific circumstances.

If you need a modification, you must communicate this to your trustee and the creditors so as to prevent yourself from falling behind.

Handling Plan Dismissals

Failing to follow your repayment plan could lead to a dismissal of your case. If this happens, creditors may resume collection actions against you.

To avoid this - stay proactive in seeking adjustments or request guidance from your bankruptcy attorney.

Remember, being transparent about your financial difficulties will help you find solutions before issues escalate and continues to send the message to the creditors that you're not ignoring them or avoiding responsibility of your finances.

Living After a Chapter 13 Bankruptcy

Once you complete Chapter 13 bankruptcy, you're going to feel a sense of relief and accomplishment.

However, it’s important to maintain good financial habits to prevent future debt issues.

Discharge of Remaining Debts

After successfully completing your repayment plan, the court discharges all eligible remaining debts. This means you are no longer legally obligated to pay them, and unsecured debts like credit card balances or medical bills are typically forgiven.

Create a Sustainable Financial Plan

This is the time where you use this fresh start to establish a long-term financial plan. Build an emergency fund, always track expenses, and set up financial goals that help you maintain stability.

It's also wise to seek advice from financial professionals so you can have strategies that help you better reach your financial goals.

Don't Be Afraid of Chapter 13 Bankruptcy

Deciding to declare Chapter 13 is a turning point in your financial life that lets you work towards financial recovery.

Now that you've come this far, we advise you take the next step and speak to a Chapter 13 attorney in your area to see how they can help you. We guarantee you'll be glad that you did.


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