Chapter 13 Bankruptcy:
Chapter 13 bankruptcy is generally filed by debtors who have a valuable asset like a home or other property that is not covered by exemptions. If they file for Chapter 7 bankruptcy they are in danger of losing the property. Hence a Chapter 13 bankruptcy is preferred.
What is a Chapter 13 bankruptcy?
Unlike a Chapter 7 bankruptcy, a Chapter 13 bankruptcy does not discharge all debts immediately. Instead the debtor proposes to pay the creditors over a period of three to five years according to a planned payment schedule. The debtor needs to plan monthly payments to clear his debts.
Since Chapter 13 bankruptcy requires scheduled payments to the creditors, it is generally appropriate only for those debtors who have a regular source of income. Freelancers or job workers are not considered good prospects for a Chapter 13 bankruptcy.
Eligibility condition for a Chapter 13 bankruptcy
There are certain circumstances under which an individual is not considered eligible for a Chapter 13 bankruptcy. They are as follows.
- If the secured debts are greater than $750,000 and the unsecured debts are greater than $250,000 the individual is not considered eligible for a Chapter 13 bankruptcy.
- A debtor cannot file for a Chapter 13 bankruptcy if he has received a discharge under Chapters 7, 11 or 12 less than 4 years ago.
- If he has received a discharge under Chapter 13 less than 2 years ago.
- If a vehicle has been purchased less than 2 ½ years prior to the filing of Chapter 13 bankruptcy, the secured creditor retains the lien until full payment has been made.
- Debt relating to domestic support payments, student loans, and drunk driving injuries, criminal restitution and civil restitution is not discharged.
- Certain taxes are also not discharged under Chapter 13 bankruptcy.
Reasons for filing a Chapter 13 bankruptcy and not a Chapter 7 bankruptcy
- The primary reason for choosing Chapter 13 over 7 is that the individual has an expensive piece of property or asset that is not covered by exemption.
- Some individuals also choose to file a Chapter 13 bankruptcy for ethical reasons. They believe it is the right thing to do and they must clear debts under all circumstances. They sincerely desire to repay debts but need the help of the law to do so.
- Individuals who have missed a few mortgage or car payments often file for Chapter 13 bankruptcy because they want to make up for the missed payments and reinstate their original agreement.
Steps to filing a Chapter 13 bankruptcy
As with filing any kind of bankruptcy is it vital to know what you are doing. An individual contemplating filing a Chapter 13 bankruptcy must hire an attorney to help him or her out.
The first step is to file a petition with the bankruptcy court where the debtor is residing. The court then appoints an impartial trustee for the case. The trustee serves as the liaison between the debtors and the creditors. He collects payments from the former and distributes them to the latter.
The debtor then needs to file a plan of repayment with the court within 15 days of filing the petition. Some people file the plan with the petition itself. A meeting of creditors is held no more than 20-50 days after the petition is filed during which the repayment plan is finalized.
The bankruptcy judge then determines at a confirmation meeting is the plan is valid and acceptable or not. Once the plan has been accepted it is the debtors prerogative to ensure than the plan succeeds.
If not, the debtor may find himself or herself preparing to file a Chapter 7 bankruptcy after all.
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