Chapter 13 Bankruptcy
Chapters 13 Bankruptcy is intended for debtors with regular income who want to pay off their debts but are currently unable to do so. These debtors propose a plan of repayment where creditors are paid over an extended period of time, which usually runs between three and five years. Creditors may be paid in whole or in part, while any remaining debt is discharged upon completion of the court-approved plan. This type of bankruptcy is similar to Chapter 11 bankruptcy and is sometimes called "Consumer Debt Adjustment."
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Who is Eligible for Chapter 13 Bankruptcy?
Chapter 13 provides relief for any individual on condition that his or her unsecured debts are less than $269,250 and secured debts are less than $807,750. A debtor is prohibited from filing under Chapter 13 or any other bankruptcy chapter if during the preceding 180 days (six months) a prior bankruptcy petition was dismissed because the debtor failed to appear before the court or comply with the court's orders or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. Corporations and partnerships are prohibited from filing under Chapter 13.
What to Expect in Your Chapter 13 Bankruptcy Case
Your Chapter 13 Bankruptcy case begins by filing a petition with the US Bankruptcy Court in your area. A number of other forms and documents are required to be presented with the petition, such as a statement of financial affairs. Your bankruptcy attorney can advise you about these items. A husband and wife may file petitions jointly or as individuals. You will be required to pay court administration and filing fees at this time. If you are unable to pay these fees at the time of filing, the court may grant permission for you to pay them in an installment plan, with the final installment due no later than 120 days after filing the petition.
An "automatic stay" is put into effect when the petition is filed. Essentially, an automatic stay prohibits creditors from initiating or continuing any action against you to collect on your debts. This includes lawsuits, wage garnishment, and telephone calls. After the commencement of a Chapter 13 case, a special automatic stay provision prohibits creditors from seeking to collect a consumer debt from any individual who is liable with the debtor. Consumer debts are debts incurred for consumer, as opposed to business, needs. One very helpful application of the automatic stay can be used in the event of an individual debtor faced with foreclosure by a mortgage company. By filing a Chapter 13 petition, the debtor can prevent an immediate foreclosure. Consequently, the late mortgage payments are included into the plan of repayment and repaid over time.
Preventing foreclosure by filing for Chapter 13 Bankruptcy can be extremely complex. An experienced bankruptcy attorney can assist you in ensuring everything is taken care of properly and within the allotted time frame.
After the petition has been processed with the court a "meeting of creditors" is scheduled. The debtor must attend this short meeting with the trustee. The creditors’ attendance is optional. A confirmation hearing is held after the meeting of creditors. During the confirmation hearing, the bankruptcy judge will determine whether your proposed repayment plan is feasible and complies with the standards of the United States Bankruptcy Code. Creditors then receive a 25-day notice of the hearing and are entitled to object to the confirmation of the plan. Payments to the trustee must begin within thirty days of filing the plan, even if the court has not yet approved the plan.
If the court approves your plan, the trustee may begin distributing funds you have paid as soon as practical. These payments and distributions continue for the life of the plan, a period between three and five years if approved by the court.
If the court does not approve your plan, you may then either file a modified plan or convert your case to a Chapter 7 liquidation case. If both your original plan and modified plan are not approved by the court and the case is dismissed, all funds paid to the trustee will be returned to you, minus specified amounts for costs. Circumstances may arise that affect your ability to make plan payments, or a creditor objects to your plan, or you may have accidentally forgotten to list all of your creditors. In cases such as these, the plan may be modified either before or after the court accepts it. However, you may not incur any new credit obligation without consulting the trustee while the plan is being carried out.
After your plan is accepted, you are responsible to make sure that payments are made and the plan is successful. Payments may be made in several ways. Monthly payments may be made directly to the trustee, or you could have these payments taken directly from your paycheck. Paycheck deduction is usually the best option because payments are certain to be made on time and therefore the plan is more likely to be completed. If you fail to make payments according to your plan, your case may be converted to a Chapter 7 bankruptcy case or dismissed completely.
The Role of the Trustee
A trustee will be assigned to your case to serve a role similar to that of the trustee of a Chapter 7 Bankruptcy case. However, the trustee in a Chapter 13 bankruptcy case primarily serves as a disbursement agent. This trustee will collect your monthly payments of the plan and make the appropriate distributions to your creditors.
Contact a bankruptcy lawyer in your area to find out more about filing for bankruptcy.