Chapter 13 Frequently Asked Questions (Chapter 13 FAQs)

What is a Chapter 13 bankruptcy?

A Chapter 13 bankruptcy case allows a person to repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. You must submit a plan for the repayment of all or a portion of your debts. The plan must be evaluated by the trustee and approved to become effective. If your repayment plan is approved, most creditors will be prohibited from enforcing your debts directly against you. You will make regular payments to a person called the trustee, who collects the payments and disburses them to creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, you are released from liability for the remainder of your dischargeable debts.

When is a Chapter 13 preferable to a Chapter 7?

A Chapter 13 is preferable in a number of situations including when a debtor cannot satisfy the means test to qualify for a Chapter 7 bankruptcy or is not eligible to file a Chapter 7 because of a prior Chapter 7 discharge or dismissal too close in time to the current bankruptcy filing. A Chapter 13 bankruptcy is also appropriate when a debtor has non-exempt assets that cannot easily be converted to exempt assets but the debtor does not want to lose the assets in a Chapter 7 bankruptcy. If you own a home with substantial equity you may file a Chapter 7 to discharge non-secured debt, then file a Chapter 13 to make arrearage payments on your home.

Must I repay all debts in full under a Chapter 13 bankruptcy?

Some debts including domestic support obligations and taxes, and fully secured debts must be paid in full under a chapter 13 plan. However, you are only required to pay an amount that you can reasonably afford on most debts. The unpaid balances of most debts that are not paid in full under a Chapter 13 plan are discharged upon the completion of the plan.

How long does a Chapter 13 payment plan last?

The plan may be a 3 to 5 year plan depending on the specifics of your situation.

How does a Chapter 13 Bankruptcy differ from a Chapter 7 bankruptcy?

A Chapter 7 bankruptcy involves liquidating assets and discharging unsecured obligations where there is no non-exempt property from which to pay unsecured creditors. A Chapter 13 bankruptcy involves repaying priority and secured debts and some portion of unsecured debts over a period of 3 to 5 years. A Chapter 13 bankruptcy normally lasts much longer than a Chapter 7 bankruptcy and is usually more expensive for the debtor.

How is a Chapter 13 payment plan different than debt consolidation programs?

A Chapter 13 bankruptcy prevents collection and debt enforcement efforts against a debtor including wage assignments, bank levies and enforcement of court judgements. Creditors can also be compelled to accept repayment that is less than the amount actually owed on a debt. A debt consolidation program cannot do any of these things for a debtor.

What is a Chapter 13 bankruptcy plan?

A Chapter 13 bankruptcy plan is a written plan presented to the bankruptcy court by a debtor that states how much money or property the debtor will pay to the chapter 13 trustee, how long the debtor's payments to the Chapter 13 trustee will continue and how much will be paid to each of the debtor's creditors.

What if certain creditors do not agree with the plan?

It does not matter whether creditors agree with the plan as the trustee makes the determination on whether the plan should be approved. The approval or agreement of one's creditors is not necessary. However, the court must approve how secured creditors are handled, and creditors may file objections to the plan that the trustee must consider.

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