Chapter 13 Highlights
Chapter 13 is often referred to as the "wage earner plan". It is a different form of consumer bankruptcy, where you create a plan to reorganize your debts. Chapter 13 is a very powerful tool that can help debtors address problems that cannot be resolved in other other way.
Chapter 13 is often used to stop foreclosure of a debtor's home, and restructure other debts, to bring total monthly payments into line with available income.
Chapter 13 can also be used to stop collection of back taxes. Recent taxes can be paid over a period of up to five years, without further penalty or interest; older taxes can often be paid at a significant discount.
Chapter 13 can also be used to control collection of defaulted student loans, or domestic support arrears. It can also be filed when debtors are not eligible for Chapter 7 due to excess income or a prior bankruptcy case.
Because Chapter 13 can be used to protect much more property that Chapter 7, it is often used to protect property a debtor does not want to lose in a Chapter 7 proceeding.
Like Chapter 7, the first step in filing a Chapter 13 is to list out all your debts and everything you own. In bankruptcy, the idea of debt is very broad. You should tell your attorney about every debt anyone says you owe, or that you think you might owe. Ownership is very broad too. Tell your attorney about everything you have, you might have, or you might receive. Don't try to hide things. Your attorney can only protect the things he or she knows about; if you don't tell your attorney, you leave your things unprotected, and you increase the likelihood your property will be lost. Plus, not disclosing things you own may be a bankruptcy crime!
Next, you provide your attorney with information to calculate your total income, and all your expenses and bills. It is very important that you tell your attorney about all money you have received from any source during the last 6 months. Your attorney will use this information to determine the amount you can afford to pay into your Plan each month to reorganize your debts and protect your property. You must tell your attorney about all income and all expenses.
Your attorney will then take this information and create a Chapter 13 plan. The debtor will re-start certain direct payments, such as regular monthly mortgage payments or regular monthly domestic support payments. Mortgage and support arrears, back taxes, and all unsecured debt (like credit cards, medical bills and personal loans) are placed inside the Plan. Loans secured by personal property like cars, furniture, appliances and jewelry are also usually paid through the Plan. The debtor makes one payment to the Chapter 13 trustee each month that covers all obligations being paid through the Plan. The payments are usually made by wage deduction and continue for 36 to 60 months. Upon completing payments under the Plan, mortgage accounts are brought to current status, personal property liens are released and clear title given to the debtor, back taxes are satisfied, and all debts -- except for a very few specific kinds -- are discharged. "Discharged" means the federal court issues an Order that says creditors are forever forbidden to take any action to collect any of the debt from the debtor.
Chapter 13 has many advantages, but there are also disadvantages. First, it is still a bankruptcy. I goes on your credit report and remains on the report for ten years from the date the case is filed. Its impact on the credit report is no better than Chapter 7, even though you are making regular payments. You have a monthly payment to make, and your remain in the bankruptcy until the plan is completed. As long as you remain in the plan, you must get approval from the bankruptcy court to sell major items of property, especially real estate, or to incur debt (in western Virginia, approval is not required if the new debt amount is less than $5,000.00).
Please note that this is only an overview of Chapter 13. It is not legal advice. And it is not detailed enough to allow you to successfully navigate a Chapter 13 filing. You should meet with an experienced bankriuptcy attorney to go over the details of your situation, and discuss how bankruptcy may help. Chapter 13 is very complicated, and filing without an experienced attorney will very likely result in failure. For any bankruptcy, you should consult with an attorney experienced in Chapter 13 cases, so that the attorney can advise you of all available options. Don't assume all bankruptcy attorneys are experenced in Chapter 13. Many are not. Ask.
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