Chapter 13 Bankruptcy Lawyer

Bankruptcy is often viewed as a procedure that gets an individual stripped to the shorts. But in actuality, it is far from this common notion. There are various types of bankruptcies in the US that can be used to accomplish different goals. Chapter 13 bankruptcy is one such procedure that can help individuals restructure their finances and stand back on their feet.

What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy, also known as wage earner’s plan, enables individuals to restructure and devise a plan to repay a part or all of their debt. Under this type of bankruptcy, debtors propose a repayment plan to pay creditors over three to five years. When a debtor pays off his dues, creditors are forbidden by law to continue or initiate collection efforts. Unlike chapter 7, chapter 13 bankruptcy does not wipe debts but helps debtors reorganize their finances and pay off creditors.

Difference between Chapter 7 and Chapter 13 Bankruptcy

One of the most basic differences between chapter 7 and chapter 13 bankruptcy is the eligibility criteria. For example, only individuals could file for a chapter 13 bankruptcy, while both businesses and individuals can file for a chapter 7 bankruptcy. Another primary difference between chapter 7 and chapter 13 bankruptcy is how they allow debtors to settle their debts. In chapter 7, bankruptcy, debtors sell their assets and use the money to settle their debt. On the other hand, chapter 13 bankruptcy allows debtors to reorganize and restructure their finances to pay off their debts.

Eligibility Criteria for Filing Chapter 13 Bankruptcy

Chapter 13 bankruptcy can be filed by individuals or jointly by husband and wife. Businesses and incorporations are not allowed to file for bankruptcy under the chapter. All individuals could file for a chapter 13 bankruptcy as long as their unsecured debts are less than US$394,725 and secured debts are not more than US$ 1,184,200. Unsecured debts include credit card bills, medical bills, etc., while secured debts include home or other property mortgages, car loans, etc. The amounts stated are changed periodically according to variances in the consumer price index.

Other requirements to be fulfilled for filing a chapter 13 bankruptcy are:

  • Debtors wishing to file for chapter 13 bankruptcy should prove filing state and federal taxes for four previous years.
  • A debtor could not file for chapter 13 bankruptcy if a petition were dismissed within the last 180 days due to an individual’s non-compliance to court orders or failure to appear in court or in case creditors dismissed the petition.
  • A debtor must receive credit counseling from an EOUST-approved credit counseling agency 180 days before filing for Chapter 13 bankruptcy. However, there are exceptions to this situation. For example, when an emergency or the US trustee (or bankruptcy administrator) finds that there are insufficient approved agencies to counsel a debtor, the individual can file a petition without receiving counseling.

How Does Chapter 13 Bankruptcy Work?

Chapter 13 bankruptcy is initiated after a debtor files a petition in the bankruptcy court. The debtor is required to submit the following documents while filing the petition for chapter 13 bankruptcy:

  • A schedule of assets and liability payments
  • Current income and expenditure
  • A schedule of unexpired leases and executory contracts
  • A detailed statement of financial affairs
  • Credit counseling certificate and a debt repayment plan developed during the counseling
  • Proof of payment from employers, if any, received 60 days from filing
  • Statement of monthly income and outlining any anticipated increase in income or expenses after the filing
  • Record of any interest the debtor may hold in federal or state tuition or education accounts
  • A list of creditors and the amount owed to them
  • Copy of the most recent federal return and tax returns submitted after filing the petition

Upon filing the case, an impartial trustee is appointed to administer the proceedings. In the case of chapter 13 bankruptcy, the trustee evaluates the case and is in charge of collecting the money from the debtors and disbursing it to the creditors.  

The filing of the petition automatically activates a stay on creditor collection activities. After coming into effect, creditors do not generally initiate or continue lawsuits or make phone calls demanding payments. Instead, a notice is sent out to all the creditors provided by the debtor from the court, informing them about the filing of the petition. Post the appointment of the trustee, a meeting of creditors is held. The debtor is to mandatorily attend the meeting and answer all the questions from the trustee and creditors under oath. In case a husband and wife file a joint bankruptcy petition, both need to attend the meeting. The meeting is used to raising issues with the repayment plan. After the meeting, the bankruptcy court sets up a hearing for the debtor’s chapter 13 repayment plan.

Chapter 13 Bankruptcy Plan Confirmation

The debtor must file a repayment plan with or 14 days after filing the petition. This plan must have provisions defining the payment a debtor will pay the trustee monthly or bi-weekly. The trustee then uses the plan to disburse the creditors’ debt completely or partially based on their claims and the terms of the repayment plan. Typically, creditor claims’ fall in one of the following categories:

  • Priority Claims: These claims are granted priority, and the debtor must prioritize paying the debt falling in the category over other claims. Most taxes, fees for bankruptcy proceedings, etc., fall under the category.
  • Secured Claims: These are the claims that give the creditors the right to take over a specific property agreed to as collateral for the debt.
  • Unsecured Claims: The debt falling under the category is not protected by collateral. This means creditors do not have any right to confiscate property if the debtor fails to pay the debt.

The plan must account for the priority of the claims. In addition to this, priority claims should be paid in full unless creditors agree to the different treatment of the claim. If the debtor wants to keep collateral securing a debt, the repayment plan must prove that the creditor of the claim receives at least the collateral value. If the debt was taken to buy the collateral within a certain time frame before filing for bankruptcy, the plan must include provisions to fully repaying the debt and not payment equivalent to the current value of the collateral. The plan may not provide unsecured claims to be paid in full as long as the debtor agrees to use their projected disposable income to pay the claims over a commitment period. Further, the amount paid to the unsecured creditors must equal the payment they would have received on liquidation of assets owned by the debtor.

The creditors may oppose the repayment plan drafted by the debtor. However, the final decision of approval of the plan lies with the bankruptcy court. Once approved, the trustee will begin disbursing the collected payments once the plan is practicable. If the court declines to confirm the plan, the debtor is allowed to submit a modified plan. During this period, the debtor is allowed to change the petition to a chapter 7 bankruptcy.

Upon the plan's approval, the debtor is responsible for making it work by timely paying the trustee. Therefore, the debtor can secure and retain their assets only when regular payments are made. In addition, no new debt can be acquired without the trustee's permission, as it can impact the debtor’s ability to complete the plan. This way, a debtor can secure their assets and property while discharging debts under Chapter 13 bankruptcy.

Why Hire a Chapter 13 Bankruptcy Attorney?

  • A chapter 13 bankruptcy attorney can guide and assist you in your means test calculation. The calculation indicates whether you can afford to make payments under chapter 13 bankruptcy or file for chapter 7 bankruptcy. A bankruptcy attorney can ensure you do not miss out on any special circumstances.
  • A bankruptcy attorney will help you in drafting a repayment plan that meets your needs. The bankruptcy attorney will also help you identify the treatment each claim receives to ensure you avoid foreclosure or lose out on any assets.
  • With a chapter 13 bankruptcy attorney, you can identify the debts that will be discharged once the repayment plan is executed. A bankruptcy attorney will also help you prove that the plan was executed and all the debt was paid off.
  • Bankruptcy laws are complicated, and it requires intensive research. However, with a chapter 13 bankruptcy lawyer by your side, you are assured of following the procedure and considering every aspect that could impact your case.

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