Bankruptcy Basics: Individual Debt Adjustment in Chapter 13

Seal of the United States bankruptcy court. Ch...

Image via Wikipedia

The Wage Earner’s Plan and Its Advantages

A Chapter 13 bankruptcy, a type of wage earner’s plan, allows any employed individual or self employed person operating an unincorporated business the opportunity to seek bankruptcy relief as long as the individual’s unsecured debts are less than $307,675 and secured debts are less than $922,975.

Under a Chapter 13, a debtor must propose an individual debt adjustment plan to repay all or a portion of the debts with whatever disposable monthly income is available to the filer. Unless a court approves a different timetable “for cause,” the plan devised must be for a period of 3 years if monthly income is less than the applicable state median, and for five years if monthly income is above the applicable state median. During this time, the law prevents creditors from starting or continuing collection activities.

A Chapter 13 offers certain advantages that are not offered in a liquidation. You can save your home from foreclosure; reschedule secured debts; provide protection for co-debtors; consolidate your loans under one plan; keep non-exempt property; extend certain tax obligations, student loans, or other such qualifying debts; and to qualify for bankruptcy relief.

Beginning the Bankruptcy Process

A Chapter 13 begins when you file a petition with a bankruptcy court in the area in which you live. Unless a court orders otherwise, you must provide the court with schedules of your assets and liabilities, current income and expenditures, contracts and leases, and a statement of financial affairs. These forms are a part of the petition process and must be accurate. Upon completion, the papers must be filed with the bankruptcy court clerk’s office along with payment of filing and administrative fees.

A creditor’s meeting must be held within 60 days of the date you filed. You will be required to attend the meeting where all the creditors and trustee will be given an opportunity to ask you questions concerning your financial affairs. Creditors are not required to attend.

Chapter 13 Plan and Confirmation Hearing

From the date of an approved filing you will have 15 days in order to file your individual debt adjustment repayment plan to the court. The court will have to approve your plan before it will be administered by the trustee.

Your plan must provide for fixed payments on a regular basis, usually biweekly or monthly. If the plan is approved, you will make the payments directly to the trustee or make arrangements to have them directly withdrawn from your bank account for the duration of the plan.

The bankruptcy court judge will hold a confirmation hearing on your proposed plan no later than 45 days after the creditor’s meeting. The judge will decide whether or not the plan is feasible and meets the standards for confirmation as stated in the Bankruptcy Code.

Implementation of the Plan

After the plan is approved by the judge, the trustee will then start implementing the plan by paying the funds to creditors according to the terms of the plan. Depending on your disposable monthly income, the creditors may receive all or only a portion of what the creditors claim. What debts the creditors do not get paid for during the plan may be discharged at the end of the bankruptcy process.

Enhanced by Zemanta
The following two tabs change content below.