Chapter 13 Bankruptcy
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Chapter 13 bankruptcy allows an individual to repay all or a portion of the debts you owe your creditors. Using Ch 13 bankruptcy, you can propose a repayment plan that gives you more payment flexibility. Plans range in duration from three to five years. In order to file for Chapter 13, you must have a steady income. If your monthly income is less than your state’s median income, the plan will be for three years unless the court finds “just cause” for a period longer than that. Should your monthly income be greater than your state’s median income, the plan must generally be for five years. No plan may exceed the 5-year maximum duration.
The typical person who files for Chapter 13 will have one or more of the following characteristics:
1. Mortgages or other loans they would like to bring current, so they don’t lose their homes or other property.
2. Taxes, child support, or student loans that can’t be eliminated via Chapter 7 bankruptcy.
3. Moral convictions that all debts should be paid no matter how long it takes
With a Chapter 13 bankruptcy, you’ll need a steady, stable income, and disposable income. Disposable income is that which is left over after you pay the bare necessities of life such as food, shelter, and utilities. You cannot have more than $922,975 in secured debt. Secured debt is that which involves property that your creditor can take if you don’t make your payments such as the mortgage on your home. You cannot have more than $307,675 in unsecured debt. These amounts are adjusted periodically to reflect changes in the consumer price index.
The steps in the Chapter 13 Wage Earner Bankruptcy process are as follows:
In the beginning, the Ch 13 Bankruptcy process is quite similar to that of a Chapter 7 bankruptcy proceeding. The petition is filed by the debtor in the federal Bankruptcy Court. The petitioner must also file a “Statement of Financial Affairs.” Additionally, the debtor needs to file a list of creditors, a schedule of assets and liabilities, and a schedule of current income and expenditures.
It is extremely important that all the forms are completed accurately. That’s the diplomatic way of saying – you must be forthright and truthful with your declarations! Any debts not listed will not be discharged at the completion of the proceedings. A willful failure to list assets in an attempt to hide them from creditors may result in serious consequences, including the denial of discharge or charges of bankruptcy fraud. Experts say that this is much easier to detect than tax fraud. Simply put – don’t do it.
Along with the filing of the Chapter 13 bankruptcy petition, one must submit a proposed payment plan that covers a period of three to five years. It must provide for the payment of all “priority claims” in-full. The only exceptions to this are if a particular priority creditor agrees to a different plan or, if the claim is a domestic support obligation, the debtor agrees to contribute all disposable income to a five year plan. “Priority Claims” are given a special status under bankruptcy law. They may include such items as taxes and the costs of the bankruptcy proceeding. There are limitations on the ability to modify the payments due on home mortgage loans under this chapter.
A bankruptcy trustee is appointed by the Bankruptcy Court. They are charged with the review of the proposed plan for accuracy and feasibility. The proposal is distributed to creditors who have the right to object to the plan if they believe it to be unreasonable. If approved, the debtor gets to keep all assets during the period outlined in the plan. Monthly payments are made by the debtor to the bankruptcy trustee. The payments are then distributed to the creditors in accordance with plan. Once the plan is completed as approved, the debtor is discharged from any unpaid debts. Several alternatives are available to the debtor if they fail to complete the approved plan depending upon the reasons for the failure.
The bankruptcy trustee may support a modification in the plan if the noncompliance is due to circumstances such as job loss or a serious illness. If the noncompliance is as a result of circumstances for which the debtor cannot “justly be held accountable,” and if creditors received at least as much as they would have under a Chapter 7 bankruptcy filing, and a modification is not possible – a debtor can apply for a hardship discharge. Keep in mind, though, the hardship discharge will not apply to debts that were not dischargeable under Chapter 7.
Should the debtor fail to keep up payments in accordance with the accepted plan, creditors can apply to the Bankruptcy Court for termination of the Chapter 13 proceeding by dismissing the proceeding in its entirety. If the proceeding is dismissed entirely, creditor collection efforts may resume against the debtor’s assets.
