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What is chapter 13? Some bankruptcy basics for Ohio homeowners

Many of the stories that this blog has reported have talked about chapter 13 bankruptcy proceedings. Many Ohio residents seek chapter 13 relief to reorganize debts. Many people call a chapter 13 as a wage-earner's bankruptcy. Still, many Ohio residents may not know a great deal about this form of bankruptcy proceeding.

Chapter 13 is commonly used to save a home from foreclosure. A homeowner with an income who has fallen behind on mortgage payments may be able to retain the home despite the delinquent payments. Chapter 13 may allow a homeowner to make up past due balances on the mortgage through the three-to-five-year chapter 13 bankruptcy payment plan.

To retain the home, the homeowner would need to continue to make the regular mortgage payments on time throughout the bankruptcy case.

When a chapter 13 petition is filed with the bankruptcy court, creditors generally must stop all bill collection efforts. That is due to a legal mechanism in the bankruptcy case known as the "automatic stay." A foreclosure proceeding falls under the automatic stay, and therefore the foreclosure is put on hold, unless the bank later gets permission to resume collections from the bankruptcy court.

In a chapter 13, the petitioner identifies all creditors, all debts and all assets in the filing documents. A bankruptcy lawyer can assist in compiling the information and creating a proposed payment plan. That plan is used to distribute payments to creditors during the pendency of the bankruptcy, and the plan is generally based upon the income and liabilities of the individual case.

A chapter 13 bankruptcy seeks to reorganize debts over the course of the three-to-five year plan. At the end of the chapter 13 bankruptcy, the court may discharge the remaining balances on any unsecured debts, leaving the chapter 13 bankruptcy petitioner with a fresh financial start. A Cincinnati bankruptcy lawyer can explain the process in detail, especially in light of the individual financial structure of an Ohio resident.

Source: Source: United States Court, "Individual Debt Adjustment," last accessed on Feb. 20, 2013

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