Chapter 13 bankruptcy allows the debtor to keep property and repay debts over a three (3) to five (5) year period.
Also known as the wage earners plan, it enables individuals with regular income to develop a plan to repay all or a portion of their debts. This can range from 1% to 100%, depending on the debtor’s circumstances.
Under Chapter 13 laws, the debtor creates a repayment plan to pay off creditors over time. If the debtor’s current monthly income is greater than the state median, the plan will usually have to be for five years. No plan can be longer than the five year limit, as stated in 11 U.S.C Sec. 1322(d).
The code also says, “while the debtor is in Chapter 13, the law forbids creditors from starting or continuing collection activities. 11 U.S.C Sec. 362.”
Chapter 13 offers individuals several important benefits. These include:
In addition, Chapter 13 provides a special provision that protects third parties who are liable with the debtor on consumer debt. This provision may protect co-signers and loved ones who helped assist debtors establish credit worthiness to purchase secured items.
Chapter 13 bankruptcy is similar to a debt consolidation program under the protection of the federal bankruptcy court. The debtor will decide with his attorney how much they can afford to repay. Regular monthly payments are sent to a Trustee. The trustee then distributes the debtor’s payments to all filed claimants and creditors.
At the end of the debt repayment time period, the Debtor receives a bankruptcy discharge. Unlike Debt consolidation plans, the debtor is protected by the court against lawsuits from creditors attempting to freeze the debtor’s bank account or garnish their wages. With this protection, the debtor doesn’t have to worry if payments are being received by the creditors or if the appropriate amount is being paid.
Tough times happen for many people, and they may not be able to keep making their planned payments. In this case, the debtor can ask the court to grant them a hardship discharge.
After confirmation of a plan, circumstances may arise that prevents the debtor from finishing the plan. In such circumstances, the debtor may ask the court to grant a hardship discharge.
There are three requirements that have to be met to ask for a hardship discharge.
Circumstances in which a hardship discharge are possible typically have to be serious and permanent. This might mean an injury or medical condition that completely disables the debtor.
The important thing to remember is that losing a person’s job isn’t considered a permanent circumstance. After all, the debtor can always find another job. The same goes for a decrease in income.
If the debtor’s circumstances are considered temporary, they do have other options. Modification will usually be the next possible solution.
A Chapter 13 payment plan modification can allow a few different options.
If a modification isn’t possible, a debtor may also request to convert to a different type of bankruptcy, such as Chapter 7.
Anyone can qualify to file for bankruptcy. There isn’t an exact amount of debt or financial difficulty required. You don’t have to show insolvency or meet a certain standard.
You should always speak with a lawyer before beginning the bankruptcy process to ensure it’s the best option for you. Michelle Labayen is a knowledgeable and experienced bankruptcy attorney with offices in New York, NY, Miami, FL, and Newark, NJ.