Chapter 13 Bankruptcy Basics
Chapter 13 Bankruptcy Basics
The purpose behind Chapter 13 Bankruptcy filing is rehabilitation of the debtor. Meaning you are given the opportunity to repay some or all of your debts. But under generally better terms (lower or no interest). Rather than having to liquidate assets to pay off debts, this process is designed to allow the debtor to use future income to pay off creditors. Chapter 13 Bankruptcy is basically an adjustment or reduction of debts for a debtor with regular income.
The United States Bankruptcy Code provides the debtor an opportunity to pay back their creditors over a period of time of up to five years. This process is completely supervised by the court. Your attorney will ensure that your interests will be protected.
Chapter 13 Bankruptcy allows the debtor to keep all of their property. However, an interest-free plan for repayment must be developed and approved by the court. The debtor begins to make payments within thirty to forty five days after the case has begun. Unlike Chapter 7 Bankruptcy, the payments are made to the trustee who will then pay the appropriate creditors. Chapter 13 Bankruptcy prevents creditors from collecting from the debtor. The creditors are required by law to follow strictly the terms of the repayment plan. Your attorney will prepare this payment plan.
After the repayment plan is filed the debtor's creditors will have an opportunity to object to the proposed plan. This process is called a confirmation hearing which is heard before a judge. The attorney will appear before the judge on behalf of the debtor. The judge will confirm the plan if the debtor is current with their payments and if the trustee and any creditor problems are resolved. After the plan is confirmed, if the debtor simply makes all the required monthly payments, then they will receive their discharge.
This whole process is very complicated and recommended the debtor has the advice of a good attorney.
In order to file Chapter 13 the debtor must be able to pay monthly living expenses and pay the trustee to consolidate the debt. In order to make these payments the debtor must have a consistent source of income or at least reasonable prospects of future income. Just like in a Chapter 7 Bankruptcy, the individual must live, reside, be domicile, or have a place of business in the United States. Additional, the debtor must have a regular source of income and the amount of their debt may not exceed a certain amount.
What does it mean to have a regular source of income? According to the Bankruptcy Code, "any individual whose income is sufficiently stable and regular to enable such individual to make payments under a plan under Chapter 13 Bankruptcy." is considered to have a regular source of income.
Although the limits of debt will not apply to most citizens, (the limits are extremely high), it is noteworthy to know the figures. The amounts of debt are different every year. The amount is based on and subject to the inflation adjustment provided in the Bankruptcy Code. Consulting an attorney is the best way to know if you are eligible for Chapter 13 bankruptcy.
If you meet all of the requirements listed above and you are tired of the daily harassment from creditors Chapter 13 may be the answer.
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