Chapter 13 FAQ’s
What is Chapter 13?
Chapter 13 is commonly thought of as a debt consolidation and repayment plandebt consolidation and repayment plan: In Chapter 13 debt consolidation, you are in control of your financial situation. You propose your own repayment plan based on what you can afford and within the guidelines set down in the law. As long as the plan of repayment that you propose is in compliance with the Bankruptcy Code, your creditors have no choice and must accept the repayment terms that you have proposed. Under a credit counseling agency debt consolidation plan, the creditors set the terms of repayment., and is also known as the debt-adjustment plan. A person filing Chapter 13 proposes a repayment plan to his or her creditors with the payments to come from future income. Generally, this amount is paid to the Chapter 13 TrusteeTrustee: An officer of the Justice Department who exercises statutory powers, principally for the benefit of the unsecured creditors, under the general supervision of the court. The trustee is a private individual or corporation appointed in all Chapter 7 and Chapter 13 cases, and some Chapter 11 cases. The trustee’s responsibilities include reviewing the debtor’s petition and schedules and bringing actions against creditors or the debtor to recover property of the bankruptcy estate. In Chapter 7, the trustee liquidates property of the estate, and makes distributions to creditors. Trustees in Chapter 13 cases have similar duties to a Chapter 7 trustee and the additional responsibilities of overseeing the debtor’s plan, receiving payments from debtors, and disbursing plan payments to creditors. by your employer, and then distributed monthly to the creditors by the Trustee.
A Chapter 13 Plan proposes debt repayment out of an individual’s future income. The typical repayment plan lasts a minimum of 36 months and a maximum of 60 months. The plan must be approved by a Bankruptcy Court Judge. The plan payments are made to a Chapter 13 Trustee, who is an attorney appointed by the Court to represent the interests of the creditors. The Trustee, in turn, distributes the funds to the creditors in the case. The Trustee takes a small percentage of the plan payments as his or her fee.
Which debts are paid through the Plan?
The Chapter 13 Plan generally pays debts existing as of the date of filing, called pre-petition debts, such as past due balances on mortgage payments, child support payments, and back taxes; all of which must usually be repaid in full. Credit card debt and similar unsecuredunsecured debt: Debt not backed by a mortgage, pledge of collateral, or other lien, for which the creditor has no right to pursue specific pledged property upon default. Examples include personal or signature loans, credit card debt, and medical bills. debt is also paid through the plan, although in some cases a debtordebtor: A person who has filed a petition for relief under the Bankruptcy Code. may receive a dischargedischarge: A release of a debtor from personal liability for certain dischargeable debts set forth in the Bankruptcy Code. A discharge releases a debtor from personal liability for certain debts known as dischargeable debts and prevents the creditors owed those debts from taking any action against the debtor to collect the debts. The discharge also prohibits creditors from communicating with the debtor regarding the debt, including telephone calls, letters, and personal contact. after paying only a percentage of the unsecured debt. This is known as a composition plan. In addition, the plan may pay off a vehicle a person has previously financed. You are responsible for future payments on regular household obligations such rent, utility, or mortgage payments, vehicle insurance, and taxes assessed after the date of filing.
What if I am in a Chapter 13 plan and I can't make my monthly payment?
If you are presently a client of ours in a Chapter 13 plan and you find yourself unable to make your monthly payment, please let us know right away. We can often apply for a short suspension of your plan payments, up to three months, if you are sick and unable to work or perhaps between jobs. The sooner we take action, the better! This is one of the many services included in your legal fee.
How long will I be in a Chapter 13 Plan?
A Chapter 13 Plan requires that you make regular payments of disposable incomedisposable income: In general, this is any income left over each month after you pay all your necessary monthly expenses. However, for Chapter 13 bankruptcy purposes, Congress has re-defined this to mean your current monthly income less allowed expenses according to IRS standards. for a minimum of 36 months, unless you are able to repay all of debts in full in a shorter period. In certain cases the plan may extend up to 60 months.
When is filing Chapter 13 better than filing Chapter 7?
Chapter 13 is best for people who are behind on mortgage or vehicle payments, those who owe back taxes, student loans, or child support, or people who simply don’t qualify for Chapter 7Chapter 7: The chapter of the Bankruptcy Code providing for liquidation, i.e., the sale of a debtor’s nonexempt property and the distribution of the proceeds to creditors. due to high income or equity in property. Filing under Chapter 13 immediately stays, or stops, lawsuits, garnishments garnishment: The process of petitioning for and getting a court order directing a person or entity (garnishee) to hold funds they owe to someone who allegedly is in debt to another person, often after a judgment has been rendered. For example, a garnishment of wages for delinquent child support., foreclosuresforeclosure: The system by which a party who has loaned money secured by a mortgage or deed of trust on real property (or has an unpaid judgment), requires sale of the real property to recover the money due, unpaid interest, plus the costs of foreclosure, when the debtor fails to make payment. proceedings or vehicle repossession as well as civil arrest warrants for unpaid child support, and allows you additional time to repay these debts.