A Chapter 13 is a court proceeding, providing relief for debtors, under the Bankruptcy Code. In order to file under a Chapter 13, a debtor must have a regular source of income and have enough disposable income to fund the Chapter 13 plan. The plan is reviewed and must be approved by the court to become effective. The exact amount to be paid to the creditors is determined by several factors including the debtor’s regular and disposable income. The debtor must make regular plan payments to the Chapter 13 trustee, who collects the money paid by the debtor and disburses it to creditors in the manner called for in the plan. Once a debtor has completed the repayment plan and has attended money management classes, the debtor will be released of the liability of their dischargeable debts.

QUALIFYING FOR CHAPTER 13 BANKRUPTCY

In order to qualify for relief under Chapter 13 of the Bankruptcy Code, the debtor must be employed or have another source of regular income. A debtor must have disposable income in excess of their living expenses in order to pay a portion of the debts to the creditors. The debtor must also have the ability to propose a feasible, in good faith, Chapter 13 repayment plan. A Chapter 13 plan lays out the debtor’s plan of action to repay their debts over a period of 3-5 years. Prior to filing a Chapter 13, a debtor must receive credit counseling from an “approved nonprofit budget and credit counseling agency” within 180 days of filing their bankruptcy petition.

CHAPTER 13 BANKRUPTCY PROCESS

The Chapter 13 process takes 3-5 years to complete from the filing of the original Chapter 13 petition. The petition is filed with the bankruptcy court in your district. Once the petition is filed, the “automatic stay” takes place, which halts the debtor’s creditors from taking further collection efforts, including foreclosure/sheriff sales and repossessions from taking place. The bankruptcy clerk assigns the debtor a judge, a trustee, and a case number. The clerk will then mail a notice of the bankruptcy to the creditors. Once the petition is filed, the debtor must begin making payments to the Chapter 13 trustee within 30 days and continue the payments until the planned repayments are complete or risk the case being dismissed.

The debtor will be required to appear at the Section 341 Meeting of Creditors about 4-6 weeks after the petition is filed. The trustee will review the petition, schedules, statement of financial affairs and income statements. The trustee is there to make sure everything has been filed correctly and to make sure that debtor has the disposable income to pay into the plan.

Approximately 3 months after the debtor’s case is filed, the bankruptcy court will conduct a confirmation hearing to determine whether the proposed Chapter 13 plan is feasible and includes the required elements. If the creditor’s have any objections to the proposed plan they will bring them before the court and will be resolved before the case can be confirmed. The court will generally confirm the Chapter 13 plan if all provisions of the Bankruptcy Code are met: filing fees have been paid; the plan has been proposed in good faith; unsecured creditors will receive at least the amount to which they would be entitled to in a Chapter 7; secured creditors will receive their collateral or the amount of their claim with interest; the bankruptcy schedules indicate that the debtor can make all of the proposed plan payments; and the trustee recommends the plan be confirmed.

If the plan is confirmed, the debtor must complete the 3-5 year repayment plan in order to be released from the liability of the dischargeable debts. If the debtor does not complete the repayment plan then the case may be dismissed or converted to a Chapter 7. In addition to completing the repayment plan, the debtor must attend money management classes.

BENEFITS OF FILING FOR CHAPTER 13 BANKRUPTCY

• Stop foreclosure proceedings/Sheriff sales
• Stop creditors from calling and harassing you
• Stop creditor collection letters
• Stop existing lawsuits and new law suits
• Stop collections on debts that you cosigned
• Stop wage garnishments and wage assignment
• Eliminate your debts
• Eliminate or reduce certain IRS tax liabilities
• Possibly lower your payments or interest rate

CHOOSING CHAPTER 13 OVER CHAPTER 7

Chapter 13 may work better for a person who:

• Wants to protect their property from foreclosure proceedings or the sale of their property
• Wants to repay their debts and has the regular and disposable income to do so within 3-5 years
• Wants to discharge debts that cannot be discharged in a Chapter 7
• Wants to retain property that may otherwise be liquidated in a Chapter 7
• Wants to protect a cosigner from the creditor
• Is operating a sole proprietorship and wants to continue to do so

These are just some of the reasons a Chapter 13 may work better for you than a Chapter 7.

ROLE OF CHAPTER 13 TRUSTEE

The role of the Chapter 13 trustee is to preside at the Section 341 Meeting of Creditors; review the debtor’s plan for compliance with Bankruptcy Code; make a recommendation to the bankruptcy court whether or not the plan is feasible and filed in good faith; accept debtor’s payment and distribute them to the appropriate creditor’s; report to the court any delinquencies in the debtor’s plan payments; and keep records and file reports for the court.