A Chapter 13 Bankruptcy Overview
Filing Chapter 13 bankruptcy requires debtors to fully or partially repay debtors over a period of time up to five years. Creditors are also entitled to receive interest, yet the interest paid is typically far less than charged by average creditors. To qualify for Chapter 13 bankruptcy relief, debtors are limited to a modest amount in both secured and unsecured debt. Also, debtors must earn regular income as defined within the Code. See filing chapter 13 bankruptcy for more information on the current debt ceilings and requirements to qualify. Debtors determine the amount of payments to be received by creditors. The amounts and terms of payments must be submitted to the Court for confirmation in the form of a written Plan. A Confirmation Hearing is required in all chapter 13 files and requires an appearance before the Court. Frequently, Judges ask questions directly to debtors for clarification of the plan's provisions.
Upon filing, debtors are immediately protected by an automatic stay which has the same force and effect as if a Federal Judge entered an injunction that prohibits creditors to collect debts. Thereafter, a chapter 13 trustee is assigned who will act as an administrator in the case. Trustees in Chapter 13 bankruptcy cases charge a monthly administrative fee. Further, debtors must attend a Meeting of the Creditors according to chapter 13 rules which provide, among other things, that debtors answers questions asked by the Trustee and Creditors in an informal meeting.
Why choose Chapter 13 bankruptcy if payments are required?
When filing chapter 13, a set of forms and schedules sets forth financial disclosures, debts owed, assets owned, and the terms of the proposed plan. All items are scrutinized by the Trustee and the Court. Typically, US Bankruptcy Courts rely heavily on the opinions of Trustees regarding legal compliance and sufficiency of payments. Why do some debtors choose to file Chapter 13 bankruptcy when payments are not required in Chapter 7? The question then occurs naturally, considering debtors Chapter 13 bankruptcy and Chapter 7 report similar difficult obtaining credit for 10 years after cases are resolved. Nevertheless, Chapter 13 does provide unique provisions that are simply not available in Chapter 7. See the difference between chapter 13 and chapter 7 for more information. Also be aware of the disadvantages of chapter 13 bankruptcy. Most debtors prefer filing Chapter 7 over Chapter 13 bankruptcy by more than a 2 to 1 margin.
Additional Requirements in Chapter 13 Bankruptcy Cases
The Federal Bankruptcy Code (Title 11, U.S.C. Sec 101 et seq.) provides primary chapter 13 bankruptcy laws. In addition, judicial opinions, various Federal Rules and Local Rules expand requirements for debtors. One of the most common myths about Chapter 13 bankruptcy involves the application of property exemptions. Many debtors believe that all non-exempt property may be retained when filing Chapter 13 bankruptcy. This assumption is simply not true, although debtors typically do retain significantly more property. One of the tests used by the Court for bankruptcy chapter 13 confirmation specifically incorporates property exemptions, and may or may not allow debtors to retain non-exempt property.
Debtors are required to submit all disposable income to the plan, which in turn, is distributed by the Trustee to creditors. Be aware, the term "all disposable income" is a term of legal art and subject to frequent objections. For more information regarding payments, see payments in chapter 13 bankruptcy explained. One of the more interesting practices in Chapter 13 bankruptcy is the right to convert to Chapter 7. In the past, many debtors filed Chapter 13 bankruptcy to reorganize past due payments, then, once past due amounts were brought current, converted the case to Chapter 7 and discharged general unsecured debts.
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