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In a Chapter 13 Bankruptcy, a person may repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. A person who files under Chapter 13 is called a debtor. In a Chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. If the court approves the debtor’s plan, most creditors are prohibited from collecting their claims from the debtor during the course of the case. The debtor must make their payments to a person called the Chapter 13 trustee, who collects the money paid by the debtor and disburses it to the creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts.
The basic difference between Chapter 7 and Chapter 13 is that under Chapter 7 the debtor’s nonexempt property (if any exists) is liquidated to pay as much as possible of the debtor’s debts, while in most Chapter 13 cases a portion of the debtor’s future income is used to pay as much of the debtor’s debts as is feasible considering the debtor?s circumstances. As a practical matter, under Chapter 7 the debtor loses all or most of his or her nonexempt property and receives a Chapter 7 discharge, which releases the debtor from liability for most debts. Under Chapter 13 the debtor usually retains his or her nonexempt property, must pay off as much of his or her debts as the court deems feasible, and receives a Chapter 13 discharge, which is broader than a Chapter 7 discharge and releases the debtor from liability for several types of debts that are not dischargeable under Chapter 7. However, a Chapter 13 normally lasts much longer than a Chapter 7 case and is usually more expensive for the debtor.
Chapter 13 is usually preferable for a person who – (1) wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time, (2) has valuable nonexempt property or has valuable exempt property securing debts, either of which would be lost in a Chapter 7 case, (3) is not eligible for a discharge under Chapter 7, (4) has one or more substantial debts that are dischargeable under Chapter 13 but not under Chapter 7, or (5) has sufficient assets with which to repay most debts, but needs temporary relief from creditors in order to do so.
In a Chapter 13 case, the bankruptcy court can provide aid to the debtor that private debt consolidation services cannot provide. For example, the court has the authority to prohibit creditors from attaching or foreclosing on the property, to force unsecured creditors to accept a Chapter 13 plan that pays only a portion of their claims, and to discharge a debtor from unpaid portions of debts. Private debt consolidation services have none of these powers.
Any debts whatsoever, whether they are secured or unsecured. Even debts that are nondischargeable, such as debts for student loans, alimony or child support, may be paid under a Chapter 13 plan.
No, while priority debts, such as debts for alimony, maintenance and support and debts for taxes, and fully secured debts must be paid in full under a Chapter 13 plan, only an amount that the debtor can reasonably afford must be paid on most debts. The unpaid balances of most debts that are not paid in full under a Chapter 13 plan are discharged upon completion of the plan.
Usually all of the disposable income of the debtor and the debtor’s spouse for a three-year period must be paid into the Chapter 13 trustee. Disposable income is income received by the debtor and his or her spouse that is not reasonably necessary for the support of the debtor and the debtor’s dependents.
The debtor must begin making payments to the Chapter 13 trustee within 30 days after the debtor’s plan is filed with the court, and the plan must be filed with the court within 15 days after the case is filed. The payments must be made regularly, usually on a weekly, bi-weekly, or monthly basis. If the debtor is employed, payment can be made through a Voluntary Wage Deduction.
A Chapter 13 plan must last for three years, unless all debts can be paid off in full in less time. However, a Chapter 13 plan can last for as long as five years, if necessary.
No. To become effective, a Chapter 13 plan must be approved by the court, not by the creditors.
There are four methods of dealing with secured creditors under Chapter 13: (1) the creditor may accept the debtor?s proposed plan, (2) the creditor may retain its lien and be paid the full amount of its secured claim under the plan (3) the debtor may surrender the collateral to the creditor, or (4) the creditor may be paid or dealt with outside the plan. It is important to understand that a creditor has a secured claim only to the extent of the value of its security, which cannot exceed the value of the property securing the claim.
If a cosigned or guaranteed consumer debt is being paid in full under a Chapter 13 plan, the creditor may not collect the debt from the cosigner or guarantor. However, if a consumer debt is not being paid in full under the plan, the creditor may collect the unpaid portion of the debt from the cosigner or guarantor.
Any natural person may file under Chapter 13 if the person – (1) resides in, does business in, or owns property in the United States, (2) has regular income, (3) has unsecured debts of less than $307,675, (4) has secured debts of less than $922,975, (5) is not a stockbroker or a commodity broker, and (6) has not been a debtor in another bankruptcy case that was dismissed within the last 180 days on certain technical grounds.
A husband and wife may file jointly under Chapter 13 if each of them meets the requirements listed in the last answer, except that only one of them need have regular income and their combined debts must meet the debt limitations.
If both spouses are liable for any significant debts, they should file jointly under Chapter 13, if each of them has income. Also, if both of them have regular income, they should file jointly.
A pending Chapter 7 case may be converted to Chapter 13 at any time at the request of the debtor, if the case has not been previously converted to Chapter 7 from Chapter 13.
There is a $274.00 filing fee charged when the case is filed, which may be paid in installments if necessary. In addition, the Chapter 13 Trustee assesses a fee of 9 or 10 percent on all payments made under the plan. These fees are in addition to the fee charged by the debtor?s attorney.
Usually not. Under Chapter 13, creditors are usually paid out of the debtor’s income and not from the debtor’s property.
The filing of a Chapter 13 case automatically stays (stops) all lawsuits, attachments, garnishments, foreclosures, other actions by creditors against the debtor or the debtor’s property.
It may worsen it, at least temporarily. However, if most of a person’s debts are ultimately paid off under a Chapter 13 plan, that fact may be taken into account by credit reporting agencies. If very little is paid on most debts, the credit-rating effect of a Chapter 13 case may be similar to that of a Chapter 7 case.
When a Chapter 13 case is filed, it becomes a public record and the name of the debtor may be published by the credit reporting agencies. However, newspapers do not usually publish the names of persons who file under Chapter 13
In some cases, yes. Many courts require a debtor’s employer to make payments to the Chapter 13 trustee on the debtor’s behalf or the debtor may choose to pay by Voluntary Wage Deduction Order.
The court may confirm a Chapter 13 plan if: (1) the plan complies with the legal requirements of Chapter 13, (2) all required fees, charges and deposits have been paid, (3) all priority claims will be paid in full under the plan, (4) the plan was proposed in good faith, (5) each unsecured creditor will receive under the plan at least as much as it would have received had the debtor filed under Chapter 7, (6) it appears that the debtor will be able to make the required payments and comply with the plan, and (7) each secured creditor has been dealt with in the appropriate manner.
Most debtors have to appear in court at least once for a hearing called the meeting of creditors. The meeting of creditors is usually held about a month after the case is filed. The debtor’s testimony should not be lengthy. If difficulties or unusual circumstances arise during the course of a case, additional court appearances may be necessary.
If the court will not approve the plan proposed by a debtor, the debtor may modify the plan and seek court approval of the modified plan. If the court does not approve a plan, it will usually give its reasons for refusing to do so, and the plan may then be appropriately modified so as become acceptable to the court. A debtor who does not wish to modify a proposed plan may either convert the case to Chapter 7 or dismiss the case.
Unsecured creditors must file their claims with the bankruptcy court within 90 days after the first date is set for the meeting of creditors in order for their claims to be allowed.
If the debtor is temporarily out of work, injured, or otherwise unable to make the payments required under a Chapter 13 plan, the plan can usually be modified so as to enable the debtor to resume the payments when he or she is able to do so. If it appears that the debtor’s inability to make the required payments will continue indefinitely or for an extended period, the case may be dismissed or converted to Chapter 7.
Only two types of credit obligations or debts incurred after the filing of the case may be included in a Chapter 13 plan. These are: (1) debts for taxes that become payable while the case is pending, and (2) consumer debts arising after the filing of the case that are for property or services necessary for the debtor’s performance under the plan and that are approved in advance by the Chapter 13 trustee. All other debts or credit obligations incurred after the case is filed must be paid by the debtor outside the plan. Some debts require approval in advance by the Chapter 13 trustee.
The debtor should immediately notify the bankruptcy court and the Chapter 13 trustee in writing of the new address. Most communications in a Chapter 13 case are by mail, and if the debtor fails to receive an order of the court or a notice from the Chapter 13 trustee because of an incorrect address, the case may be dismissed.
The debtor has the right to either dismiss a Chapter 13 case or convert it to Chapter 7 at any time for any reason. However, if the debtor simply stops making the required Chapter 13 payments, the court may dismiss the case and the Automatic Stay will no longer protect the debtor.
A debtor who is unable to complete the Chapter 13 payments has three options: (1) dismiss the Chapter 13 case, (2) convert the Chapter 13 case to Chapter 7, or (3) if the debtor is unable to complete the payments due to circumstances for which he or she should not be held accountable, close the case and obtain a partial Chapter 13 discharge.
The debtor’s attorney performs the following functions in a typical Chapter 13 case: (1) Examining the debtor’s financial situation and determining whether Chapter 13 is a feasible alternative for the debtor, and if so, whether a single or a joint case should be filed, (2) assisting the debtor in the preparation of a budget, (3) examining the liens or security interests of secured creditors to ascertain their validity or avoidabliity, and taking the legal steps necessary to protect the debtor’s interest in such matters, (4) devising and implementing methods of dealing with secured creditors, (5) assisting the debtor in devising a Chapter 13 plan that meets the needs of the debtor and is acceptable to the court, (6) preparing the necessary pleadings and Chapter 13 forms, (7) filing the Chapter 13 forms and pleadings with the court and paying, or providing for the payment of, the filing fee, (8) attending the meeting of creditors, the confirmation hearing, and any other court hearings required in the case, (9) assisting the debtor in obtaining court approval of a Chapter 13 plan, (10) checking the claims filed in the case, filing objections to improper claims, and attending court hearings thereon, (11) assisting the debtor in overcoming any legal obstacles that may arise during the course of the case, (12) assisting the debtor in obtaining a discharge upon the completion or termination of the plan.
The fee charged by an attorney for representing a debtor in a Chapter 13 case must be reviewed and approved the bankruptcy court. This rule is followed whether the fee is paid to the attorney prior to or after the filing of the case, and whether it is paid to the attorney directly by the debtor or by the Chapter 13 trustee. The court will approve only a fee that it finds to be reasonable.
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