Chapter 13 Bankruptcy may be thought of as an individual’s version of a corporate reorganization. A timeout on collections and help crafting a manageable repayment plan allows many Chapter 13 filers to repay many of their debts, and puts them on the path to a more stable financial future.
Any individual (or married couple) who meets the current income and debt level requirements may file a petition for Chapter 13 bankruptcy. At the time of filing or shortly thereafter, the petitioner must also file, or receive a court order exempting them from filing, the following documents:
- a schedule of assets and liabilities;
- a schedule of current income and expenditures;
- a schedule of executory contracts and unexpired leases;
- a statement of financial affairs;
- a certificate of credit counseling; and
- a debt repayment plan.
The key to a successful Chapter 13 bankruptcy is the repayment play. It allows a debtor to keep his or her property and pay debts down over a set period of time, typically three to five years. While the plan is in place, the debtor makes fixed payments to the court-appointed trustee, typically biweekly or monthly. The trustee then distributes the funds to creditors according to the terms of the plan. During the plan years, the debtor may catch-up on past-due payments without voiding the contracts they entered into with creditors. This benefit of Chapter 13 is frequently used by petitioners to save their homes from foreclosure. In addition, creditors generally may not initiate or continue lawsuits, wage garnishments, or even make telephone calls demanding payments while the plan is in place. If the debtor fails to make the payments due under the plan, the court may dismiss the case or convert it to a Chapter 7 case and liquidate the debtor’s property. Failing to follow through with the plan, unless a change is approved by the court, limits the debtor’s ability to file for bankruptcy protection in the future, and of course, removes the protections the failed plan had provided. At the end of the plan period, Chapter 13 debtors are eligible to discharge much of their remaining debt. However, to the extent that they are not fully paid under the Chapter 13 plan, the debtor will still be responsible for the following:
- certain long term obligations like mortgages;
- debts for alimony or child support;
- certain taxes;
- debts for most government funded or guaranteed educational loans or benefit overpayments;
- debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs; and
- debts for restitution or a criminal fine included in a sentence on the debtor's conviction of a crime.
While many people think of Chapter 7, and the loss of personal property, when they think of bankruptcy, Chapter 13 can be a great option that allows you to keep your property and make payments over time rather than liquidating all nonexempt assets. An experienced bankruptcy attorney can help you determine the best option to best meet your personal and financial needs. |