What is it?
Chapter 13 bankruptcy is a repayment plan that looks your at your income, not your property, to pay your debts. The plan consolidates your debts and allows you to make payment over the three to five years of the plan. During the Chapter 13 plan, creditors cannot collect from you and the creditors must follow the terms of the plan. The plan takes into account your disposable monthly income after your expenses and determines what you can afford to pay over the three to five year period. After you make the payments under the plan, the remaining unsecured debts (credit card bills, many personal loans, and medical bills) are discharged, while you carry on paying any secured debts that survive bankruptcy, such as your mortgage or car loans.
What do I need for a Chapter 13?
Because the Chapter 13 does not look to your property, but your income to repay debt, the court requires that you must be working or have a consistent source of income for the repayment plan to be approved. Without a steady income or employment, your plan will not be approved.
Why would I choose a Chapter 13?
Chapter 13 offers three main benefits that may make it the best option for you. First, your property is not going to be sold off to satisfy your creditors. Congress created Chapter 13 so that those who have regular income could choose to have their creditors paid out of their income, and not through the sale of their property. Second, any late mortgage payments or “arearages” can be paid throughout the life of the plan. Third, a second mortgage or home equity line of credit may be “stripped” off of your property, and may be eliminated altogether.
For those facing foreclosure or just wanting to keep their property, Chapter 13 can be the right choice to make.
Do I have to choose Chapter 13?
Some people do not qualify for Chapter 7 and still need bankruptcy protection. After 2005, Congress, in an effort to get more people to use Chapter 13, required those seeking Chapter 7 to meet a “means test.” For some people who earn more than allowed by the “means test,” Chapter 13 is their only way to get bankruptcy protection.
How long does it take?
Chapter 13 plans are either for three to five years. When the Bankruptcy Petition is filed, the Automatic Stay begins, halting all collection activities, wage garnishments, and harassment by your creditors. A trustee is then appointed to administer the Chapter 13 case. The court gives notice of the bankruptcy to all of your creditors and set a time for the first Meeting of Creditors about 20 to 50 days after the filing. Your attendance at the Meeting of Creditors is required. The Meeting of Creditors is overseen by the trustee appointed to your case and gives the creditors an opportunity to inquire about the debts and the proposed plan for repayment. There may be a later hearing to confirm the proposed repayment plan. If the court confirms the plan, the trustee will start collecting and distributing funds according to the plan. If the the court does not confirm the plan, we will have to modify the plan or attempt to convert the case to a bankruptcy under Chapter 7. The Chapter 13 plan is either for three or five years, but should your circumstances change, it may be possible to end the plan prematurely.
What is a discharge?
The discharge is a court order given at the end of a bankruptcy that requires all of your creditors that were named in the bankruptcy to stop any action to collect upon those debts. The Supreme Court has stated that the purpose of bankruptcy is to give people the ability to “reorder their affairs, make peace with their creditors, and enjoy a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” The discharge is how this is done. Once you have gotten a discharge, you are free of those debts.
What happens afterwards?
The next step is to assure that you are truly getting your fresh start. We will meet 30 days after your discharge to review your credit report and assure that your creditors are accurately reporting the correct information. We are focused on your financial health and protecting your rights as a consumer, and that does not end with the discharge. If your creditors continue reporting that you owe any of the obligations discharged in bankruptcy to the credit reporting agencies, we will assist you in taking them to court. If your creditors continue actions to collect any of the obligations discharged in bankruptcy, we can haul them back into the bankruptcy court to protect your hard won discharge.