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How exactly does Chapter 13 bankruptcy work?

Wisconsin residents who are facing a sudden financial crisis may file for bankruptcy at a designated court. But, before someone takes this step, it is important to understand Chapter 13 of the bankruptcy code, which deals with individual debt adjustment. If an individual's debt falls under the specified amount and a previous appeal for bankruptcy has not been rejected within a period of 180 days, that person cannot file for bankruptcy under Chapter 13.

The debtor needs to file a bankruptcy case at a designated court in the state where the person resides. The debtor also needs to produce a list of current assets and liabilities, documents related to current income and expenditure, a statement showing current and expired leases and data on financial affairs. But, before filing a case a debtor should provide a certificate of credit counseling approved by federal agencies and also a debt repayment plan. Tax return documents should also be provided to the Chapter 13 trustee. Spouses may file for bankruptcy through a joint petition or they can file individually.

The fees that the court charges for admitting such cases must be paid at the time of filing, although the court may allow payment in installments under certain circumstances. The case may be dismissed by the court if the debtor fails to make the payment. The debtor also needs to furnish information such as a complete list of creditors and claims and details of the debtor's monthly expenses, including the basic necessities like food, shelter and medicines.

The court appoints a trustee to administer bankruptcy cases, who evaluates the case and makes payments to the creditors after collecting the same from the debtor. Once a case is filed under Chapter 13, a stay order from the court prevents any collection action against the debtor. Within 50 days of filing the case, the trustee arranges for a meeting between the debtor and creditors to sort out any issues. The creditors need to file their claims within 90 days after the meeting. Any issues are then usually resolved within a short period of time after the meeting.

Source: USCourts.gov, "Individual Debt Adjustment," Accessed on April 3, 2015

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