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Filing for Chapter 13: Process for debtors

When debt becomes too great for Tennessee consumers to handle, Chapter 13 bankruptcy is a viable option. Chapter 13 does not eliminate debt like Chapter 7, however. Rather, it allows consumers to pay off debt over an extended period of time so they can hold onto their homes, cars and other property. Chapter 13 does require a lot of responsibility on the debtor's part, however, as there are many obligations that must be met in order to satisfy the requirements and complete the process.

The first step is to submit the appropriate paperwork and pay the fee. The debtor must provide a list of creditors, assets and proof of income. Previous years' tax returns and a repayment plan will also be required, as well as $274 for fees. The repayment plan can span up to five years and allow for manageable payments.

If the repayment plan is approved, the debtor must start making payments within 30 days after filing. A trustee will take control of the money and distribute it to creditors according to the plan or the debtor can have the money taken directly out of each paycheck. Money will be taken out to pay attorney and administrative fees first. Next comes any child support or alimony obligations. Tax debts and any money owed to employees would be paid after that.

All secured debts must stay current during a Chapter 13 bankruptcy. This includes mortgages, car payments, personal loans and any liens. Any disposable income would be used to pay unsecured debts such as credit cards and medical bills.

Sometimes modifications may be approved in extreme circumstances, but for the most part, the debtor must stick to the plan. If not, the bankruptcy can be dismissed. Those in need of debt relief should contact a bankruptcy lawyer to discuss their options.

Source: FindLaw, "What are a Debtor's Obligations under Chapter 13?," accessed July 12, 2015

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