Chapter 13 of the bankruptcy code allows debtors to keep there property and pay off debts over time, usually in three to five years. This section of the code is for people with regular income and it allows for the debts to be adjusted so they can be paid off. Debtors propose an installment payment plan for all or a part of their debts. The length of time of the plan depends on the debtors income. If it is greater than the state median the plan will be for five years and if it is less than the state median the plan will be for three years. In no case is the plan longer than five years and during the period of the plan creditors are not allowed to continue or peruse collection efforts.
There are several advantages to chapter 13 as opposed to chapter 7, which is a liquidation. The biggest advantage is that the person can stop foreclosure of their house and cure delinquent mortgage payments over the life of the bankruptcy. They must make all house payments that come due during the bankruptcy period on time. The next biggest advantage is that the debtor can reschedule other secured debt payments over the period of the bankruptcy which often makes the payments smaller.
Individuals are eligible for chapter 13 bankruptcy information as long as they meet the debt limits. Currently unsecured debts cannot be over $360,475 and secured debts cannot be over $1,081,400. Corporations and partnerships are not eligible for chapter 13 bankruptcy. An individual is not eligible for any type of bankruptcy if in the past 180 days a bankruptcy petition was dismissed by the court for the debtors willful failure to appear or follow orders of the court or if a petition was voluntarily dismissed after creditors sought to enforce liens against the debtors property. Also, debtors are required to under go debt counseling within 180 days before filing a bankruptcy petition from an approved credit counseling agency.
The petition is filed in the applicable bankruptcy court for the area where the person lives. Also, the debtor must file schedules of assets and liabilities, current income and expenditures, executors contracts and unexpired leases, and a statement of financial affairs. Further filings must include a proof of credit counseling and the repayment plan, if any, worked out through credit counseling, evidence of pay from employers for 60 days prior to filing the petition, a disclosure of monthly net income and any expected increases in income or expenses after filing, and records pertaining to any federal or state qualified education or tuition accounts. The debtor must provide the trustee with copies of all applicable tax returns pertaining to the case. A husband and wife may file a joint petition or individual petitions. Compiling the chapter 13 bankruptcy information can be a daunting and time consuming task.
Supporting documentation is required with each item to be filed for the bankruptcy. This documentation will include: a list of all creditors and amounts owed; the amount, source and frequency of income; a list of all property owned by the debtor; a detailed list of the debtors monthly living expenses; this information is required for both spouses even when an individual petition is being filed so the court can accurately evaluate the financial position of the household.
An independent trustee is appointed by the court to administer the bankruptcy case. The trustee evaluates the case and acts as a dispersing agent, collecting payments from the debtor and making payments to creditors on the debtors behalf in accordance with the bankruptcy plan. The filing of a petition automatically stays collection activity against the debtor and his or her property. The bankruptcy court clerk notifies all creditors listed in the case. This stay also applies to co-debtors unless the court rules otherwise.
The trustee will hold a meeting of creditors between 21 and 50 days of the petition being filed. The debtor is placed under oath and both the trustee and the creditors can ask questions. The debtors must attend the meeting and answer questions but the judge does not attend so that the court’s independence can be maintained. Any problems with the plan are resolved during the meeting or shortly afterward.
After the creditors meeting a court hearing on the repayment plan is held and if approved by the court the plan is implemented.