Chapter 13 is most often used by people who have fallen behind and need to catch up on payments for mortgages and vehicles. In Chapter 13, people with a regular source of income pay a portion of their monthly income into a plan which pays creditors over a period of three to five years. The portion you pay is determined by the amount of disposable income you have and other factors. Creditors who hold a lien on your property, such as the mortgage on your home or a lien on your vehicle, can either be paid, or you can surrender the collateral. For some secured debts, the amount that must be paid can be readjusted lower based on the value of the collateral. This is possible for vehicles purchased more than 910 days before the bankruptcy, for second mortgages on your home, and for mortgages on second homes. The benefits of Chapter 13 are that it allows delinquent debts to be paid off over several years, it allows some secured debt to be reduced in cases where the collateral has depreciated, and it provides a discharge for more types of debt than Chapter 7.
The Chapter 13 Process
A Chapter 13 case begins with a consultation with your attorney, who reviews your financial situation and advises you about the different bankruptcy chapters available, as well as any alternatives to bankruptcy that might work for you. Your attorney can also tell you if you are eligible to file under Chapter 13, and which of your debts can be discharged. If you do decide to file for protection under Chapter 13, your attorney will prepare your petition, schedules containing your assets, debts, income and expenses, a "statement of financial affairs" and your Chapter 13 plan. Before filing, you must review and sign these documents. Also, within 180 days before you file, you must complete credit counseling, which may be done on the internet or by telephone. The certificate of completion must be filed with your petition, or your case may be dismissed. After the case is filed, you must take a personal financial management class, which also may be done on the internet or by telephone. Your attorney can provide you with contact information for agencies who provide credit counseling and financial management classes. The filing fees for a Chapter 13 are $274.00.
Your Chapter 13 plan explains the monthly amount you will pay and how that payment will be distributed. The plan will state how much will be paid to unsecured creditors and whether you intend to pay a secured creditor through the plan or directly. Also, if you intend to 'value' collateral (readjust the debt to a lesser amount due to a depreciation of the collateral) the plan will state so. The plan must be approved by the bankruptcy judge, and it may be amended one or more times to arrive at a distribution arrangement that is acceptable to the court. After the court enters an order 'confirming' the plan, if your circumstances change, you may need to modify the plan.
Your plan provides for payments over three to five years, which are usually made automatically through a payroll deduction. After all plan payments are made, you receive your discharge. Chapter 13 provides a discharge for most types of debts, however, certain debts, such as domestic support payments, most student loans, certain taxes, most criminal fines and restitution debts, debts not properly listed in your bankruptcy, certain debts resulting from liability for personal injury or death, and long term secured debts not fully paid during the plan, are not discharged.
I hope this outline of the Chapter 13 process has been helpful to you. It has been provided as general information, and is not intended to be legal advice. If you would like to schedule a consultation with me in Boca Raton, Palm Beach Gardens, or West Palm Beach, please see my
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