Overview of Consumer Bankruptcy – Part II of II

What is Chapter 13?

Chapter 13 is a  payment plan procedure to pay back your debts. The petition and plan are file with the bankruptcy court so it is one of the two bankruptcies available to consumers.  Just about all of your debts are consolidated and instead of paying them individually, you make one monthly payment to the Chapter 13 Trustee for the county in which you live. The Trustee will use the monthly payment that you send in to repay your creditors over a period of time from three to five years.

Why does someone file Chapter 13 instead of Chapter 7?

There are a number of different reasons. Here are a few of them:

1) You filed a Chapter 7 less than eight years ago so you can’t file another one now

2) You own something worth too much money and it would be taken from you by a Chapter 7 Trustee and sold in order to pay your creditors from the sale

3) You cannot pass the Median Income/Means Test

4) You have one or more debts that you need to pay, such as a past due IRS debt

5) You want prevent a foreclosure from being filed or stop a foreclosure that has started. The monthly Chapter 13 plan payments will repay, over a period of time, the mortgage payments that have fallen past due.

As with a Chapter 7, the process involves the gathering of  information and documents in order to prepare a petition that is filed with the bankruptcy court. There is a meeting scheduled a few weeks after filing with the Chapter 13 Trustee’s office, followed a few weeks later by a court date for the matter to be recommended to the Judge for confirmation (approval) by the Chapter 13 Trustee. Upon completion of the plan, as with a Chapter 7, you receive an Order of Discharge signed by the Judge and you are now debt free, other than mortgages that you might have and possibly auto loans.

How much is the monthly payment? How many years will the plan run? Will creditors be paid in full or a percentage of what is owed them.

Determining a proper Chapter 13 plan ( proper meaning based upon the bankruptcy law) contains too many variable for this blog. Chapter 13 is almost much more complicated than a Chapter 7. Make sure that your attorney has sufficient experience and knowledge in the handling of Chapter 13 bankruptcies.