Chapter 13

Chapter 13 Bankruptcy

What is a chapter 13 bankruptcy case and how does it work?

A chapter 13 bankruptcy case is a proceeding under federal law in which the debtor seeks relief under chapter 13 of the Bankruptcy Code. Chapter 13 is the chapter of the Bankruptcy Code which allows a person to repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. The Bankruptcy Code is the federal law that deals with Bankruptcy. A person who files a chapter 13 case is called a debtor. In a chapter 13 case, the debtor must submit to the court a plan for the repayment of a plan of all or a portion of his or her debts. The plan must be approved by the court to become effective. IF the court approves the debtor's plan, most creditors will be prohibited from collection their claims from the debtor. The debtor must make regular payments to a person called the chapter 13 trustee, who collects the money paid by the debtor an disburses it to creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts.
What is a chapter 13 discharge?

It is a court order releasing a debtor from all or his or her dischargeable debts and ordering creditors not to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay. There are two types of chapter 13 discharges: (1) a full successful plan discharge, which is granted to a debtor who completes all payments called for in the plan, and (2) a partial or unsuccessful plan discharge, which is granted to a debtor who is unable to complete the payments called for in the plan due to circumstances for which the debtor should not be held accountable. A full chapter 13 discharge discharges a few more debts than a chapter 7 discharge, while a partial chapter 13 discharge is similar to a chapter 7 discharge.
What types of debts are not dischargeble in chapter 13 cases?

A full chapter 13 discharge granted upon the completion of all payments required in the plan discharges a debtor from all debts except:

1) debts that were paid outside of the plan and not covered in the plan,
2) debts for domestic support obligation, which includes debts for child support and alimony
3) debts for death or personal injury caused by the debtor's operation of a motor vehicle, vessel or aircraft while intoxicated
4) most tax debts
5) debts for restitution or criminal fines included in a sentence imposed on the debtor for conviction of a crime
6) debts for fraud, embezzlement, or larceny
7) debts for student loans or educational obligations unless a court rules that not discharging the debt would impose an undue hardship on the debtor and his or her dependents
8) debts for damages caused by willful or malicious conduct by the debtor
9) installment debts whose last payment is due after the completion of the plan
10) debts incurred while the plan was in effect that were not paid under the plan
11) debts owed to creditors who did not receive notice of the chapter 13 case
12) long-term debts upon which payments were made under the plan
What is a chapter 13 plan?

It is a written plan presented to the bankruptcy court by a debtor that states how much money or property the debtor will pay to the chapter 13 trustee, how long the debtor's payments to the chapter 13 trustee will continue, how much will be paid to each of the debtor's creditors, and certain other matters.
What is a chapter 13 trustee?

A chapter 13 trustee is a person appointed by the United States trustee to collect payments from the debtor, make payments to creditors in the manner set forth in the debtor's plan, and administer the debtor's chapter 13 case until it is closed. In some cases the chapter 13 trustee is required to perform certain other duties. The debtor is required to cooperate with the chapter 13 trustee.
What debts may be paid under a chapter 13 plan?

Any debts whatsoever, whether they are secured or unsecured. Even debts that are nondischargeable, such as debts for students loans or child support, may be paid under a chapter 13 plan.
Must all debts be paid in full under a chapter 13 plan?

No. While priority debts, such as debts for domestic support obligation and taxes, and fully secured debts must be paid in full under a chapter 13 plan, only an amount that the debtor can reasonably afford must be paid on most debts. The unpaid balances of most debts that are not paid in full under a chapter 13 plan are discharged upon the completion or termination of the plan.
Must all unsecured debts be treated alike under a chapter 13 plan?

No. If there is a reasonable basis for doing so, unsecured debts (or claims) may be divided into separate classes and treated differently. It may be possible, therefore, to pay certain unsecured debts in full, while paying significantly less on others.
When must the debtor begin making payments to the chapter 13 trustee and how are the payments made?

The debtor must begin making payments to the chapter 13 trustee within 30 days after the chapter 13 case is filed with the court. The payments must be made regularly, usually on a weekly, bi-weekly, or monthly basis. If the debtor is employed, some courts require that the payments to be made directly to the chapter 13 trustee by the debtor's employer.
How long does a chapter 13 plan last?

The required length of a chapter 13 plan depends on the debtor's income. If the debtor's annual income is less than the median family income for the debtor's state and family size, the length of the plan must be 3 years, unless the debtor can justify a longer period, which may not exceed 5 years. If the debtor's annual income exceeds the median family income, the length of the plan must be 5 years unless all unsecured claims can be paid off in a shorter period. The debtor's income is his or her current monthly income multiplied by 12.
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