If the plan passes muster with the court, then all disposable income is given to the trustee, who keeps a percentage as a fee and parcels out the rest to the creditors in accordance with the plan. You're only prevented from re-filing for Chapter 13 for six months.
What's good about Chapter 13?
Chapter 13 allows debtors a chance to halt foreclosure proceedings on their homes. While they must still make mortgage payments on time, they can pay off delinquent mortgage payments and ultimately keep their homes, according to the Administrative Office of the United States Courts.
What's more, even though it lingers longer, Chapter 13 is kinder on the credit score than a total liquidation, says Ulzheimer. Creditors will see that the debtor is making an effort to pay off the debts. Unfortunately, it will be harder to obtain new credit because creditors will know you already have to pay off other creditors. With Chapter 7, they know you're not paying off those debts, he says.
One final note: At the end of any bankruptcy, you might receive a 1099 form from creditors listing your discharged debt as unreported income. If the IRS asks, supply the documentation that shows the 1099 form resulted from a bankruptcy.
There is no Chapter 20 in the bankruptcy code. Instead the term refers to filing a Chapter 7 followed by a Chapter 13 (the sum of which is 20), says James R. Beaman, a Tucson-based attorney and co-author of "The Complete Idiot's Guide to Surviving Bankruptcy." The purpose of the second filing: to get rid of debts that are not dischargeable under Chapter 7.
This type of action is "pretty rare," says Sommer. More common is that individuals get into debt again within six years of a Chapter 7 and end up filing a Chapter 13. There are stricter limits to filing a case after a prior case under the new law.
For instance, a discharge will not be granted in Chapter 13 if the debtor obtained a discharge through Chapter 7, 11 or 12 within four years prior to the date of filing the new case, or if a debtor filed a Chapter 13 case within two years of the pending case.
Get a good attorney
In the event that you still want to file for bankruptcy, you need an experienced lawyer who specializes in bankruptcy to navigate the federal laws, state laws and tax consequences. Steer clear of petition preparers, typing services or paralegals, says Sommer. And if you are even considering filing on your own, remember the old adage: A man who represents himself has a fool for both an attorney and a client.
"It's a very bad idea," says Sommer. "Chances are, mistakes would be made that would cost you more than paying an attorney."
Under the new stipulations, lawyers must make a "reasonable inquiry to verify that the information contained" in petitions and schedules are correct. The signature of the lawyer on the petition will certify that the information in the schedules filed is correct. Lawyers face financial responsibility for court costs and creditor's attorneys' fees if the debtor's statements about property and finances prove to be false or incomplete.
Leslie Hunt contributed to this story.