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An explanation Chapter 13 bankruptcy

When people in Pennsylvania have financial trouble and have exhausted all of their resources, they could be eligible for Chapter 13 bankruptcy. The only people who are eligible for this type of bankruptcy filing are wage earners, sole proprietors and self-employed persons who earn an income regularly. Filers must have also submitted the tax forms required of them over the previous four years.

When a debtor files for Chapter 13, the individual must complete credit counseling and provide the certificate of completion to the court. The repayment plan that is developed during counseling must also be provided. Under the plan, the debtor generally agrees to send fixed payments to the trustee every two weeks or every month, and the money is distributed among the creditors. Although, the bankruptcy courts have to approve the plan, debtors must begin making payments within 30 days after filing.

After the plan is approved, the debtor granted a discharge of debt, releasing the individual from liability of certain debts. If the Chapter 13 plan is declined, the debtor could modify the plan or convert the case to Chapter 7 under certain circumstances. The court may dismiss a case if it does not approve of the modified plan. The trustee then returns the money that the debtor paid, subtracting any that was distributed to creditors already and any needed to cover expenses.

There are some cases in which filing Chapter 13 may not be the best course of action for a debtor. Pennsylvania debtors who are unsure about whether or not to file for this type of bankruptcy could get advice regarding their circumstances from lawyers. If there are alternative actions available to the debtors, the lawyers might be able to help them avoid bankruptcy.

Source: IRS, "Chapter 13 Bankruptcy – Voluntary Reorganization of Debt for Individuals", December 27, 2014

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