Chapter 13 Bankruptcy
A chapter 13 bankruptcy gives the debtor an opportunity to adjust the debtor’s financial affairs without having to liquidate current, non-exempt assets. In a chapter 13, a debtor will propose a repayment plan to make installment payments to creditors over a three to five-year period.
Chapter 13 is available only to an individual with “regular income.” Because a chapter 13 requires that monthly payments be made pursuant to the repayment plan, an individual must be able to show the bankruptcy court that the individual has regular income to make the repayment plan payments.
Similarly to a chapter 7 bankruptcy, a debtor in a chapter 13 will be required to file with the bankruptcy court certain documents, including:
- The petition;
- Schedules of assets and liabilities;
- Schedules listing the debtor’s income and expense;
- A certificate of credit counseling;
- Schedules listing the debtor’s creditors;
- A statement of financial affairs; and
- A statement of current monthly income.
As in a chapter 7 bankruptcy, the debtor will be required to attend a meeting of creditors at which the bankruptcy “trustee” (the person who is assigned to administer a debtor’s bankruptcy estate. The trustee is usually, but not always, an attorney), will ask the debtor questions regarding the filing of the bankruptcy.
After the meeting of creditors, the bankruptcy court will have a “confirmation hearing.” If a repayment plan is confirmed, the trustee will distribute funds paid into the plan by the debtor to the debtor’s creditors according to the terms of the plan.
In a chapter 13, there are three types of claims which must be addressed by the repayment plan: priority, secured, and unsecured. The plan must pay priority claim in full unless the priority creditor agrees otherwise. If the debtor wants to keep the property which is secured by a particular claim, the debtor will be required to pay the secured creditor at least the value of the property. Finally, the repayment plan need not pay unsecured claims in full provided that the debtor pay all “disposable income” over the period of the plan.
After completion of all plan payments, the debtor will receive a discharge. In a chapter 13, the debtor may receive a discharge of certain debts which are not dischargeable in a chapter 7 bankruptcy.
There are many reasons why a debtor would choose to file a chapter 13 rather than a chapter 7. To determine which type of bankruptcy might be the best for a certain individual a detailed analysis is required.