Chapter Thirteen Bankruptcy Discharge

Chapter Thirteen Debt Repayment Plans

Chapter Thirteen is used by people with assets and/or equity in their homes as a way of protecting themselves during hard times. You can get an immediate stay of foreclosure actions, as well as the ability to work out a payment plan for your mortgage arrears and attendant fees.

You get to keep your property, but must agree to a repayment plan that pays back at least a certain percentage of your debt. Under the terms of the Bankruptcy Reform Act now before Congress, this would be at least $6000 over five years. The amount you would have to pay would vary depending on income and living expenses, which are set under very strict rules.

You must have regular income sufficient to carry out a repayment plan that pays creditors in full or in part over 3 to 5

years. Because of the complexity of the law, especially after Bankruptcy Reform, I highly recommend you retain a lawyer to represent you. Find a local bankruptcy attorney here.

It is helpful to property owners facing an eminent foreclosure, since all legal and debt collection actions are automatically stayed. Since you can file Chapter 13 provisions as often as you like, this provision has been abused by some people who just seek the stay and then let the case drop.

As a result you cannot file a Chapter Thirteen petition if within the prior 6 months you had a similiar application dismissed for failure to appear or if a lien holder had successfully challenged the automatic stay.

You have to give complete financial records to the trustee. You must meet with the trustee and your creditors to work out a repayment plan.

The trustee approves a repayment plan and the debtor makes his payments to the trustee or has his bank account automatically debited.

If the payment plan is successfully completed, any unpaid debt included in the plan or disallowed is considered discharged.

Since in many cases creditors will be receiving only a fraction of what’s owed them, they have the right to object to a Chapter Thirteen plan if they think they would be better off with an asset liquidation under Chapter Seven.

If such an objection is raised, a hearing will be held before the bankruptcy judge, who will rule on the plan’s feasibility and whether it conforms to the law.

The debtor can be forced into Chapter Seven if the creditors prevail.

The debtor must stick to the plan or else it will be dismissed. He has the right to convert to a Chapter 7 application at any time (cost $645). If the case is dismissed, the debtor is at the mercies of his creditors again.

Those creditors who were provided for in full or in part under the chapter 13 plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged debt.

In return for the willingness of the Chapter Thirteen debtor to undergo the discipline of a repayment plan for three to five years, a broader discharge is available than in a Chapter Seven case.

As a general rule, the debtor is discharged from all debts provided for by the plan or disallowed, except certain obligations such as a home mortgage, debts for alimony or child support, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs or alcohol, and debts for restitution or a criminal fine included in a sentence on the debtor’s conviction of a crime.

To the extent that these types of debts are not fully paid pursuant to the chapter 13 plan, the debtor will still be responsible for them after the bankruptcy case has been concluded.

A debtor can receive a hardship discharge, without completing the repayment plan, if the court finds that there is sufficient cause for the debtor to be unable to pay, such as long term illness, and the creditors have gotten at least what they would have received in a Chapter Seven liquidation.

Many people have trouble completing these plans. Their debt is simply too much or they hit another bump in the road of life. If you are contemplating bankruptcy, make sure you find a competent bankruptcy attorney and talk over all your options. If it doesn’t look like you can make the payments, bite the bullet and file for Chapter Seven.

Some people will maintain that a Chapter Thirteen filing is not the same as filing for bankruptcy. Nothing is further from the truth. If you complete your repayment plans, significant portions of outstanding debt may be discharged.

Your bankruptcy will remain on your credit report for ten years and you will face the same hurdles as those getting a Chapter Seven discharge.

Learn how the procedure was changed by Bankruptcy Reform.

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