Chapter 13, or the wage-earner’s plan, is a voluntary repayment plan. When you complete the plan, you have the satisfaction of keeping your assets, paying your creditors and discharging your debts.

When filing Chapter 13, you agree to pay approximately 25 percent of your income to the court. The court appoints a trustee to handle your money and pay your debts. The trustee also provides advice and counsel when necessary.

To file Chapter 13, first contact an attorney who has experience in filing Chapter 13 petitions.

The attorney then files the petition with the federal court. A court-appointed trustee is responsible for reviewing the petition, confirming the petition, paying the debts and advising and counseling the debtor. After that, the court clerk sends notice of court action to creditors and the employer.

The employer sends a portion of your paycheck to the court trustee, who pays creditors. Secured debts are paid first, followed by unsecured debts. The debtor cannot borrow more money without approval of the court trustee.

The actual amount of money that is paid to creditors depends on the amount owed, the debtor’s salary and the payback timeframe. Chapter 13 payment plans may not be proposed for longer than 36 months, unless you can show reason for extending the plan. The maximum time allowed is five years.

Administrative costs may be high. They include the court costs, filing fee, the attorney’s fee and the trustee’s fee for paying off the debts. The trustee also may receive a fee for expenses such as a computer and supplies.

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Content © Rich Brott, 2011

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