As soon as the chapter 13 bankruptcy is filed, all collection actions by creditors are effectively stopped, while the case is reviewed. This includes wage garnishing, collection calls, and even lawsuits. This is the case even if these activities are already in progress.
Co-signors are also protected by this stay in collection actions. As long as co-signed debts are considered consumer debt–that is debt for personal, family, or household uses–the creditors must not make any attempts at collection until the case is over or the stay is revoked.
If the debtor’s home is listed in the chapter 13 filing, the mortgage company cannot foreclose on the homeowner unless the debtor fall behind on payments again after filing. The creditor would then be required to obtain permission from the court to foreclose. With the provisions set up in the chapter 13 process, a plan is usually written to help the debtor catch up on these mortgage payments over over a 3 to 5 year period.
It is extremely important to note that in most chapter 13 repayment plans very little if any money is paid to unsecured creditors (such as medical bills, credit cards, check loans) while allowing the debtor to catch up on mortgages or restructure overpriced car loans.
A meeting of creditors will be held by the trustee, to allow the creditors to come and review the debtor’s financial situation, consider the proposed repayment terms, and ask questions. The trustee will also ask questions. And the debtor is required to answer all of these questions in full honesty. The debtors attorney is seated next to the debtor and is there to assure the questioning is polite and appropriate. These meetings are very short, with the questioning usually lasting between 5 to 10 minutes.
Following the meeting of the creditors, the trustee works with the debtor’s attorney to resolve any concerns with the payment plan. Creditors also have an opportunity to object. In most cases objections from creditors relate to valuation of their collateral, and not necessarily to the debtors right to be in bankruptcy. Once the issues are resolved, the case is presented to the judge for confirmation. Once a case is confirmed, the debtor makes their monthly payment through the trustee until the case is concluded. There are other simple procedural steps which must be done, however they vary greatly by jurisdiction.