Bolingbrook Bankruptcy Attorney Describes Chapter 13

Chapter 13 is often confused with debt consolidation.  It can be likened to debt consolidation but with the power of the Federal government behind it.  Unlike debt consolidation where it is purely voluntary, Chapter 13 involves a proposed plan of repayment which is confirmed by the court and backed by the power of the Federal Court and the Federal Law with the imposition of what is known as the automatic stay.  Chapter 13 is a 3 to 5 year period in which the debtor takes his income, subtract his ordinary living expenses, is left with what’s called disposable income and then turns around and takes that money, pays it to the standing trustee who in turn turns around and pays it to the debtor’s creditors on a pro-rata basis based on a certain hierarchy of creditors.  The payments go to secure creditors first, then they go to priority debts like taxes, and then after that they go to general unsecured creditors.  In a Chapter 13 unsecured creditors can receive as little as 10 percent.  In the event the debtor completes his plan, the 90 percent that the debtor did not repay is wiped out as if he had paid it.