Chapter 13 Bankruptcy

What is a Chapter 13 Bankruptcy Discharge?

Chapter 13 Bankruptcy, also known as Wage Earner Bankruptcy, is about repaying creditors, to the extent that you’re able, usually over a three year period, and in some cases, five years. Chapter 13 will, for example, allow you to make up past due mortgage balances, make up past due car payments, reduce the value of an automobile for debt purposes, and pay back ‘past due’ taxes. After payment of secured and priority claims, unsecured creditors will get a portion of that which is left over – and any remaining balance is discharged. Chapter 13 will also lower interest paid to zero and stop late payments.

The debtor is protected from creditors by an automatic stay…

Chapter 13 of the Bankruptcy Code is designed to enable individual debtors, under Court protection and supervision, to apply a portion of their future earnings to the payment of all or a portion of their debts over an extended period of time. The debtor is protected from creditors by an automatic stay while a plan of repayment is developed and carried out. It is similar to a Chapter 11 Business Reorganization. In fact, Chapter 13 is sometimes called “Consumer Debt Adjustment.”

This plan provides that monthly payments are made to the Bankruptcy Trustee. The trustee then disperses the moneys collected to the debtor’s creditors according to a repayment plan submitted by the debtor. The debtor must propose a payment plan based upon his or her excess monthly income, and payments must continue regularly for 36 months (in some cases 60 months.). When the plan has completed, any remaining debts are then discharged.

To qualify you must have disposable income…

To qualify for a Chapter 13 Bankruptcy you must have disposable income after payment of all living expenses so that you can support such a plan.

This is a repayment plan that protects the debtor from collection action during the plan and any unpaid balance of dischargeable debts at the end of the plan. The discharge in Chapter 13 covers many debts that cannot be discharged in Chapter 7. It is a powerful tool for debtors to regain control of their financial lives and to get a meaningful fresh start.

Debtors choose to file a repayment plan under Chapter 13 when they owe debts not dischargeable in Chapter 7 ( such as taxes, child support, fraud judgments), they have liens that are larger than the value of the assets securing the debt, they have years of unfiled taxes, they are behind on car or house payments, or their assets are worth more than the available exemptions

The Chapter 13 plan does not have to pay debts in full; it can provide for only fractional payment. What the plan has to pay to creditors is a function of the confirmation tests. The Bankruptcy Code does require that priority claims be paid in full; The most frequently found priority claims are recent taxes and family support. The Chapter 13 discharge eliminates some debts that cannot be discharged in Chapter 7, like tax penalties and debts incurred by dishonesty. It permits the debtor time to pay debts that can’t be discharged in either chapter, like recent taxes or back child support to cure defaults on home mortgages; and to eliminate liens to the extent the lien is greater than the value of the asset.

This plan is similar to Chapter 7, but…

Chapter 13 Bankruptcy is somewhat like Chapter 7, but with three exceptions: the automatic stay is covers more debt, the property of the estate is larger by including the wages of the debtor, and the plan is one of debt repayment rather than debt discharge.

Typically, you will make payments called for in your original agreement on your secured debts, and reduced payments on your unsecured debts. Most repayment plans last three years. After that, any remaining unpaid balance on the unsecured debts is wiped out (discharged). In some cases, the court will approve a five year repayment plan.

If, for some reason, such as loss of job, you cannot keep up with your payment plan, the trustee may modify it. The trustee may give you a grace period if the problem looks temporary, reduce your total monthly payments, or extend the repayment period. If it is clear that there is no way you’ll be able to complete the plan because of circumstances beyond your control, the court might let you discharge your debts on the basis of hardship. In the alternative, you can convert your Chapter 13 bankruptcy into a Chapter 7.

The total amount you will have to repay creditors depends on a number of factors, including the type of debt that you owe and the philosophy of the Bankruptcy judge.

This information is only a general summary of the chapter 13 bankruptcy law. There are exceptions to these general rules. Because this law is complicated, and due to be revised soon, you should contact us immediately so that we may advise and assist you in preparing for this or any other bankruptcy petitions.

You don’t have to go through this alone. Get the facts… know your options… contact the attorneys at the Law Offices of Martin Gross today.

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