A Chapter 13 bankruptcy allows individuals with regular income to repay all or part of their debts in installments through a Chapter 13 plan. Generally, the plan lasts either three or five years, depending on whether your income is less or more than the median income.
Under Chapter 13, you can stop foreclosure proceedings against your home, and you may cure delinquent mortgage payments through the plan. You are only required to start making your current mortgage payments plus the plan payment. The plan payment may include all other secured and unsecured debts and delinquent taxes. Depending on the value of your home, second mortgages and other liens may be stripped away and treated as unsecured creditors. You are allowed to pay as little as 0% to unsecured creditors, depending on your ability to pay. In effect, Chapter 13 acts like a
consolidation loan under which you make the plan payments to a Chapter 13 trustee who then distributes payments to creditors. Other than the mortgagor, you have no direct contact with creditors being paid through the plan.
Even if you are self‐employed or operating an unincorporated business, you are eligible for Chapter 13 relief so long as your unsecured debts are less than $383,175 and secured debts are less than $1,149,525, and within 180 days before filing, you received credit counseling from an approved credit counseling agency.
Filing the petition under Chapter 13 automatically stops all collection actions against you or your property. Creditors generally may not initiate or continue lawsuits, wage garnishments, or even make telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by you.
Between 20 and 50 days after you file the Chapter 13 petition, the Chapter 13 trustee will hold a meeting of creditors. During this meeting, the trustee places you under oath, and both the trustee and creditors may ask questions. Both you and your spouse, if filing, and your attorney must attend the meeting and answer questions regarding your financial affairs and the proposed terms of the plan. The parties typically resolve Problems with the plan either during or shortly after the creditors’ meeting. Generally, you can avoid problems by making sure that the petition and plan are complete and accurate, and by consulting with your attorney prior to the meeting. If all objections are resolved, the plan is submitted for confirmation.
If there are unresolved objections, the court will hold a confirmation hearing to determine whether the plan can be confirmed. You, your attorney, the Chapter 13 trustee, and objecting creditor(s) will attend the hearing.
Within 30 days after filing the bankruptcy case, even if the plan has not yet been approved by the court, you must start making plan payments to the trustee. You must also make any payments coming due that are being paid outside the plan (typically home and automobile payments), directly to the secured creditor.
If the court confirms the plan, the Chapter 13 trustee will distribute funds received under the plan. If the court declines to confirm the plan, you and your attorney may file a modified plan. If the court declines to confirm the modified plan and instead dismisses the case, you and your attorney may move to convert the case to a liquidation case under Chapter 7.
The provisions of a confirmed plan bind you and each creditor. Once the court confirms the plan, you must make the plan succeed. You must make regular payments to the trustee either directly or through payroll deduction, which will require adjustment to living on a fixed budget for a prolonged period. Furthermore, while confirmation of the plan entitles you to retain property as long as payments are made, you are not allowed to incur new debt without prior consent, because additional debt may compromise your ability to complete the plan.
You are entitled to a discharge upon completion of all payments under the Chapter 13 plan, but you must meet certain conditions: you must have completed an approved course in financial management, must not be in arrears in any domestic support obligations, and must not be subject to a prior discharge bar period. The discharge releases you from all debts provided for or disallowed under the plan, with limited exceptions. Creditors provided for in full or in part under the Chapter 13 plan may no longer initiate or continue any legal or other action against you to collect the discharged obligations.
For more information on Chapter 13, contact me today. I provide a free, no obligation consultation by phone or at a location near you.
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