How the Chapter 13 Restructuring Process Works
Restructuring under Chapter 13 bankruptcy is one way that many people have been able to get their finances under control. This process is different than Chapter 7, where the goal is to sell all non-essential assets to pay down your debts before canceling whatever is left over. In Chapter 13, the goal is to reduce some of the debt load and set up a repayment plan that you can honor.
It's important to understand how Chapter 13 bankruptcy is meant to work. Take a look at how your case is likely to unfold.
1. Petitioning for Relief
The first order of business is to submit a petition for relief. Documents will be sent to the court to get the process rolling. If you're not able to provide supporting documents to describe your existing liabilities and income sources, you will only have a couple of weeks to get this done. Also, it's important to name each of your creditors. Anyone that isn't named in the case will have the legal right to keep pursuing the debts in question.
2. The Court Considers the Petition
A judge will be assigned to the case, and they'll consider whether to grant the petition. They'll look at a variety of factors, but the focus will mostly be on whether your finances are bad enough to require bankruptcy. If it is judged your situation requires restructuring your debts, the court will also have to determine if you have enough income to pay things down with a reasonable payment plan. The judge will refer to the supporting documentation you've provided to make this decision.
If the petition is granted, the court will appoint a trustee. This is a person whose primary obligation is to see that as much as possible of what is owed to the creditors will be paid. They're not there to get every nickel, but they will work to ensure you make a good-faith effort to pay up a reasonable amount.
3. Submitting a Payment Plan
You will be asked to create a repayment plan. This means you'll need to figure out which debts need to be restructured to get back on track. Creditors may be asked to accept a reduced amount, such as 85% of what they're owed, to provide you with breathing room to get the debts paid.
Creditors will then have a chance to question you about your situation and the plan. The trustee will then pass a recommendation to the court, and your repayment plan will move forward if all went well.