June 20, 2019

Chapter 13 Bankruptcy

Money with Concept WordsChapter 13 is a repayment bankruptcy.  It is utilized by individuals, and owners of sole proprietorships or other “mom and pop” businesses, not only to obtain a fresh start, but also to retain their assets and reorganize their financial affairs.

For most individuals with debt problems, the major decision is whether to file for protection under Chapter 7 or Chapter 13 of the Bankruptcy Code.

Chapter 7 does not require repayment of unsecured debt; the debts are simply wiped away.  However, Chapter 7 is not available to all debtors.

Chapter 13 is an option for individuals who either have too much disposable income to qualify for a Chapter 7 bankruptcy, or who wish to retain real or personal property with equity that creditors could otherwise reach. I can advise you as to which type of bankruptcy case is the best fit for you.

The big picture on Chapter 13

Chapter 13 repayment plans last a minimum of three years and a maximum of five years, and, generally require that unsecured creditors — such as credit card companies, medical service providers, etc. — be paid a fraction of what they are owed.

IMPORTANT: mortgage payments missed before the filing of a Chapter 13 bankruptcy can be repaid during the Chapter 13 bankruptcy, allowing homeowners to stay in their houses as long as they keep current on their monthly payments as they are due during the bankruptcy.

Chapter 13 debtors send one monthly bankruptcy payment to the bankruptcy trustee’s office; the trustee uses those payments to repay debts that are included in the bankruptcy.  New local rules require that Chapter 13 debtors also send their current monthly mortgage payments to the trustee, who distributes them to the mortgage company.  This helps avoid any confusion as to whether payments to mortgage companies are in repayment of arrearages that accrued prior to the bankruptcy, or are for current obligations.

What to expect when filing Chapter 13

  1. The Chapter 13 process starts with a telephone call to my office, during which I obtain basic information from you, and, if appropriate, schedule an initial consultation with you, in my office.  There is no charge for the consultation unless and until you hire me.  During the consultation, I’ll discuss what you own, what mortgages or liens are on the property that you own, what debts you have, your income, and other facts relating to your finances. I’ll also tell you your legal options and what they will cost, and make some recommendations to you about when you should file, if you choose to do so.
  2. When you hire me to represent you in a Chapter 13 bankruptcy, I’ll guide you through the process of completing a mandatory online credit counseling course and preparing your bankruptcy petition and schedules.
  3. After my office files your petition, your creditors are forbidden from contacting you about the debts in your bankruptcy — creditors must communicate with me, through an orderly court process.
  4. After your case is filed, you will make one monthly payment to the local Chapter 13 bankruptcy trustee, for the number of months provided for in your bankruptcy plan (generally, sixty months or five years). The payment amount is based on either your disposable income or the value of the non-exempt property that you wish to keep but would otherwise lose to creditors in a Chapter 7 bankruptcy (or as a result of execution on a judgment against you). Note: every case is different, but generally, Chapter 13 debtors pay a very small percentage of their unsecured debts, such as credit card debt and medical debt.
  5. Approximately four to six weeks after your petition is filed, you must attend a hearing known as the first meeting of creditors; the hearing is not in a courtroom, and there is neither a judge nor a jury.  A representative of the Chapter 13 Trustee’s office will ask you questions about your petition; creditors have the right to attend and ask questions, but rarely do.  I attend this hearing with you.
  6. You must also complete a second online course on financial management.  After that, your main job is to make your monthly payments during the duration of your plan.  There are rules limiting Chapter 13 debtors’ ability to incur debt while their Chapter 13 case is open, and some other aspects of the bankruptcy code to understand and work under.
  7. Once the Chapter 13 payments are complete, debtors obtain a discharge:  a written order from the bankruptcy court, canceling the discharged debts.  When the discharge order is entered, a permanent injunction is in place, prohibiting creditors from attempting to collect the discharged debts.  This injunction lasts through your lifetime.

Call our office to set an appointment. 704.333.0630

Together, we will determine the best strategy for legally handling your financial troubles.

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