Chapter 13 Bankruptcy
A chapter 13 bankruptcy is also called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” (1) If the debtor’s current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. 11 U.S.C. § 1322(d). During this time the law forbids creditors from starting or continuing collection efforts. This chapter discusses six aspects of a chapter 13 proceeding: the advantages of choosing chapter 13, the chapter 13 eligibility requirements, how a chapter 13 proceeding works, making the plan work, and the special chapter 13 discharge. Instead, the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Part of the debtor’s property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain “exempt” property; but a trustee will liquidate the debtor’s remaining assets. Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result in the loss of property.
Chapter 13 Bankruptcy
A chapter 13 bankruptcy is also called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” (1) If the debtor’s current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. 11 U.S.C. § 1322(d). During this time the law forbids creditors from starting or continuing collection efforts. This chapter discusses six aspects of a chapter 13 proceeding: the advantages of choosing chapter 13, the chapter 13 eligibility requirements, how a chapter 13 proceeding works, making the plan work, and the special chapter 13 discharge. Instead, the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Part of the debtor’s property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain “exempt” property; but a trustee will liquidate the debtor’s remaining assets. Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result in the loss of property.
POSSIBLE DEBTS
DISCHARGED AT
THE END OF
CHAPTER 13
BANKRUPTCY
When you complete your Chapter 13 repayment plan, you’ll receive a discharge order to wipe out the remaining balance of qualifying debt. A Chapter 13 bankruptcy discharge is even broader than a Chapter 7 discharge because it wipes out certain debts that aren’t nondischargeable in Chapter 7 bankruptcy.
Credit card debt
Medical bills
Personal loans not secure by collateral
Older tax obligations
Breach of contract or negligence-related debt
Debts possible discharged in chapter 13 that are not discharged chapter 7 bankruptcy
Stripped or Crammed-Down Liens
Unsuccessful Bankruptcy Case Debt
Post-Petition Homeowners’ Dues
Willful and Malicious Property Damage
Certain Debts Arising Out of Divorce or
Separation Property Settlement
Debts Incurred to Pay Non-dischargeable Taxes
Government Fines, Penalties, and Forfeitures
The trustee’s job is to review your finances and assets and oversee your Chapter 7 bankruptcy. For example, they will sell a specific property the bankruptcy won’t let you keep (nonexempt property) and use the proceeds to repay your creditors. The trustee will also arrange a meeting between you and your creditors—called a creditor meeting—where you’ll go to a courthouse and answer questions about your filing.
The list of property you don’t have to sell or turn over to creditors (exempt property), and the total value you can exempt, varies by state. Some states let you choose between their exemption list and the federal exemptions. But most Chapter 7 bankruptcy cases are “no asset” cases, meaning all of the person’s property is exempt or there’s a valid lien against the property.
At the end of the process, the court will discharge your remaining debts approximately four to six months from your initial filing (meaning you don’t need to pay them anymore). However, some types of debts generally aren’t dischargeable through bankruptcy, including child support, alimony, court fees, some tax debts, and most student loans.