Chapter 13 Debt Reorganization

What is Chapter 13?

If you are considering filing for a Chapter 13 bankruptcy it is important to seek the advice of a qualified bankruptcy attorney. Experienced bankruptcy lawyers can help consumers struggling with increasing and inescapable debt find debt relief even though they do not qualify for Chapter 7 bankruptcy or if they are interested in repaying their debt, but do not want to lose assets they have acquired such as a business interest, homes, cars, etc.

Unlike Chapter 7, Chapter 13 bankruptcy doesn’t require the liquidation of a person’s assets. Instead, it allows an individual to restructure their debt and to submit a payment plan, consolidating most of their debts, upon approval by the bankruptcy court. According to the terms of the plan, a debtor s disposable income (any income after reasonable expenses) goes to the creditors for at least 36 months to 60 months after the beginning of the payment period. Upon completion of the Chapter 13 plan, most leftover debt may be discharged.

A Chapter 13 proceeding, often called a wage-earner plan, is initiated by filing a petition. As in Chapter 7 cases, the filing of the petition automatically stays (stops) creditors from trying to collect on most of their debts. 11 USC  362. There is also a special automatic stay provision in Chapter 13 that protects co-debtors. A creditor generally may not seek to collect “consumer debts” from any individual who is liable along with the debtor. 11 USC  1301(a).

Along with the petition, the debtor must also file a schedule of assets and liabilities, a schedule of current income and expenditures, a schedule of executor contracts and unexpired leases and a statement of financial affairs. The debtor must also file a certificate of credit counseling; evidence of any payments made by an employer received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest in federal or state qualified education or tuition accounts. 11 USC  521.

After filing the petition, a trustee is appointed to manage the case. 11 USC  1302. Within 20 to 50 days after the debtor files the petition, the trustee holds a meeting of creditors. The debtor must attend this meeting and answer questions regarding financial issues and the proposed plan terms. 11 USC  343. The judge must hold a confirmation hearing within 45 days of the meeting of creditors, at which time he or she will decide whether the plan is feasible and meets the Bankruptcy Code’s standards for confirmation. 11 USC  1324, 1325. Creditors may ask questions about and object to the plan. If the court approves the plan, however, the creditors can take no action outside the plan’s scope to collect their debts.

Within fifteen days after the debtor’s filing of the petition, the debtor must file a plan that sets forth the details of how he or she intends to pay off creditors in the next three years(or, with the court’s permission, five years). Fed.R.Bankr.P. 3015. The plan must provide for fixed payments to the trustee on a regular basis and it will be submitted to the court for approval. If approved, the trustee will distribute funds to the creditors according to the plan’s terms. Within 30 days of filing, the debtor must start making payments under the plan to the trustee, even if the court has not yet approved the plan. 11 USC  1326(a)(1).

There are three types of claims:

  • Priority claims. Priority claims include most taxes and the costs of the bankruptcy proceedings.
  • Secured claims. Secured claims are those for which the creditor has the right of recovering property (collateral) if the debtor does not pay.
  • Unsecured claims. Unsecured claims are claims for which the creditor generally has no special rights to collect against any property the debtor owns.

The plan must pay priority claims in full, unless a priority creditor agrees otherwise. Unsecured claims do not need to be paid in full as long as the plan provides that the debtor will pay all “disposable income” over an “applicable commitment period” and as long as unsecured creditors would receive at least as much under the plan as they would if the debtor’s assets were being liquidated under Chapter 7. 11 USC  1325.

Once the debtor completes all payments under the plan, the debtor is entitled to a discharge, which releases him or her from all debts provided for or disallowed under the plan. To obtain the discharge, the debtor must also (1) certify that all domestic support obligations have been satisfied (if applicable); (2) complete an approved financial management course; and (3) have not received a discharge within two years in a prior Chapter 13 case or within four years in a prior case under Chapters 7, 11 or 12. 11 USC  1328.

Chapter 13 can be a good option for some people, but is more complex than a Chapter 7 proceeding.  For this reason, it is especially advisable to seek the advice of a qualified bankruptcy attorney. Bankruptcy lawyers can help consumers struggling with increasing and inescapable debt find their way to a better financial future.  Contact Robinson Law PC today to schedule an appointment.

There are a number of advantages to Chapter 13 bankruptcy. But the process can be complicated and the advice of an experienced, knowledgeable attorney can help you determine what kind of repayment plan will work for you and protect your best interests throughout the process.

Contact Robinson Law PC today to get answers that you need!