In a Chapter 13
Bankruptcy, an
individual is able to
reorganize his/her debt
and catch up on payments
that may have fallen
behind, such as a house
payment. Chapter 13 is
also designed for
individuals with regular
income who would like to
pay all or part of their
debts in installments
over a period of
time. In order to be
eligible for a Chapter
13, the individual’s
debts must not exceed
the certain dollar
amounts set forth in the
Bankruptcy Code.
With a Chapter 13, a
debtor files a plan for
approval with the
court. The debtor will
make monthly payments
for a period between 3
and 5 years to a court
appointed trustee who
distributes the proceeds
to the creditors. The
amount of the payment is
based on the amount of
the individual’s income
and expenses, and the
present value of the
plan must exceed the
amount unsecured
creditors would receive
in a Chapter 7
liquidation.
Under Chapter 13, the
debtor presents a plan
for repayment, which is
reviewed by the trustee,
the creditors, and the
Bankruptcy Court. The
plan must provide
creditors with an amount
at least equal to what
they would receive under
a Chapter 7 filing, and
must be feasible based
on the debtor's income.
If the plan is approved,
the debtor makes
payments to the trustee,
who then pays the
creditors. Plans usually
run three and five
years.
Approximately 4-5 weeks
after the bankruptcy
petition is filed with
the court, a 341 (a)
Meeting of Creditors
will be held. At the
meeting, the trustee
will ask the debtor
questions about the
debtor’s financial
affairs and accuracy of
the petition and
schedules. The trustee
will also address any
issues he/she may have
with the proposed
plan. Creditors have the
right to be present and
ask questions regarding
assets and liabilities,
however, it is rare when
creditors do appear at
the meetings. After the
meeting is concluded,
the confirmation hearing
will take place
thereafter. At the
confirmation hearing,
the court will either
approve or deny the
confirmation of the
plan.
After completing the
payments under the plan,
the debts are generally
discharged except for
domestic support
obligations, most
student loans, certain
taxes, most criminal
fines and restitution
obligations, certain
debts which were not
properly listed in the
bankruptcy schedules,
certain debts for acts
that caused death or
personal injury, and
certain long term
secured obligations.
Cost
The court filing fee for
a Chapter 13 case is
$274. The attorney fees
for a Chapter 13 case
depend on complexity of
each case. Generally, a
portion of the fee is
paid before the filing
of the Chapter 13
bankruptcy, and the
balance of the attorney
fee is paid through the
Chapter 13 plan. During
your free consultation
you will be quoted an
exact fee.
Disadvantages
(1) Debtors remain under
court supervision for
the life of the plan (up
to five years), and are
forbidden to make new
debts or sell assets
without court
permission.
(2) Debtors who propose
less than full payment
to unsecured creditors
will be forced to live
on a budget for the life
of the plan and may have
to pay all excess income
to the creditors
(including tax refunds).
(3) If the debtor
doesn’t complete the
plan payments, then any
creditor may petition to
have the court convert
the case to a Chapter 7
liquidation
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