Chapter 13 Bankruptcy

Chapter 13 bankruptcy offers a debtor adjustment of debts if the petitioner has a regular income.  The petitioner has the opportunity to keep his/her property while the debt is paid in full or in part over a three to five year period.  This is why chapter 13 bankruptcy is also referred to as a wage earner's plan.  This chapter allows the debtor to put forward a repayment plan where he/she makes installment payments to the creditors.

The repayment plan is worked out according to the debtor's monthly income.  If the debtor’s monthly income is less than the applicable state median, the plan will be for three years.  If the debtor’s monthly income is greater than the applicable state median, the plan will be for five years.  The plan cannot be extended beyond five years.  During the time of repayment, creditors cannot employ collection efforts against the debtor.

A petitioner must file for chapter 13 bankruptcy with the bankruptcy court that serves the jurisdiction where the debtor resides.  At that time, the debtor must present all the required documents to the court.  The required bankruptcy documents include schedules of assets and liabilities, a schedule of current income and expenditures, a schedule of executory contracts and unexpired leases, and a statement of financial affairs.

The debtor is also responsible for supplying to the court appointed trustee with the following:

  • copy of tax returns
  • list of all creditors and the amounts owed
  • income information including source, amount, and frequency
  • list of all of the debtor's property
  • detailed list of the debtor's monthly living expenses
  • all the official bankruptcy forms necessary

Chapter 13 bankruptcy allows petitioners the opportunity to keep their homes out of foreclosure.  Chapter 13 stops foreclosure proceedings and may help debtors catch-up with any delinquent mortgage payments over time.  Petitioners will still be responsible for any mortgage payments due during the chapter 13proceedings.  This chapter also permits petitioners to reschedule secured debts and extend the debt over the life of the plan.  This chapter also has a special provision that protects cosigners that may be responsible for debts or loans.  Chapter 13 helps to consolidate loans and debts under a payment plan worked out by the bankruptcy trustee.  The debtor makes monthly payments to the trustee and he/she in turn distributes payments to the creditors.

If the financial situation deteriorates for the petitioner after a chapter 13 bankruptcy has been approved, the debtor may petition the bankruptcy court for a hardship discharge.  The hardship discharge is only available if:

  • The debtor cannot complete the payment plan because of circumstances beyond the debtor's control and through no fault of the debtor
  • The creditors have received at least as much as they would have received in a chapter 7 liquidation case
  • Modification of the payment plan is impossible.

A hardship discharge can also be employed in the case of injury or illness that prevents the debtor from fulfilling the obligations of the payment plan.

A bankruptcy attorney can simplify the process of filing for chapter 13 bankruptcy and can improve the chances of having your petition approved. 

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