Filing Chapter 13 Bankruptcy
Basic Information About Chapter 13
Chapter 13 bankruptcy is a reorganization-type bankruptcy for individuals with income. Chapter 13 debtors propose a chapter 13 plan to pay some or all of their debts over a period of up to five years. The bankruptcy code contains very particular requirements for what the debtor may propose in his or her plan, which must be confirmed by the bankruptcy court. After completion of the confirmed chapter 13 repayment plan, the debtor may receive a bankruptcy discharge that ends personal liability on many of their debts, giving them a fresh start financially.
Chapter 13 debtors generally keep their property, as long as their income is sufficient make payments that may be required. Debtors who are behind on mortgage payments often turn to chapter 13 in order to catch up the payments and keep their house. Elsewhere, we have a list of a number of advantages chapter 13 bankruptcy provides in North Carolina.
Chapter 13 Pre-filing Period
While income and expenses are an important focus of chapter 13, assets are also important pre-filing considerations. The bankruptcy law requires that creditors are no worse off in chapter 13 than chapter 7. Such necessitates an evaluation of what would happen if the debtor were to instead file chapter 7 and surrender assets to the bankruptcy trustee. Statutory means testing will determine the minimum plan duration. For debtors above the state median income, the means test will also determine what, if any, income must be committed to pay unsecured creditors, such as credit card lenders. The debtor will make an initial payment of debtor's attorney fees, with the balance paid via the chapter 13 plan. The debtor will also need to complete mandatory credit-counseling, usually online.
Filing of Chapter 13 Case
Once the chapter 13 case is filed, an automatic stay comes into effect preventing creditors from taking further collections actions, as well as a co-debtor stay protecting any co-signers of the debtor. The debtor begins making payments to the trustee shortly after filing the case. A meeting of creditors will be held, where the standing trustee will ask the debtor questions about his or her income, expenses, and other financial affairs. The trustee will then make a recommendation concerning confirmation of the debtor's plan, possibly filing an objection. The case then goes up for confirmation, in some cases with a court hearing. Once the bankruptcy judge confirms a plan, it becomes binding on all parties.
With a confirmed plan in place, the debtor will continue making payments of the amount and duration specified in the confirmed plan. The standing trustee will begin disbursing money to creditors. Some cases will continue on without any events, while in others it will be necessary for the debtor or trustee to seek a plan modification as circumstances change--for better and for worse. Upon successful conclusion of the plan, the debtor can obtain a bankruptcy discharge, and the case will close shortly thereafter.