Chapter 13 An Affordable Plan of Repayment

Bankruptcy Law Chapter 13 is an important feature applicable to all types of bankruptcy filings is the automatic stay. The automatic stay means that the mere request for bankruptcy protection automatically stops and brings to a halt most of the lawsuits, repossessions, foreclosures, evictions, garnishments, attachments, utility shut-offs, and debt collection activity.

Under Chapter 13, the debtor proposes a plan to pay his creditors over a 3- to 5-year period. This written plan details all of the transactions (and their durations) that will occur, and repayment according to the plan must begin within thirty to forty-five days after the case has started. During this period, his creditors cannot attempt to collect on the individual’s previously incurred debt except through the bankruptcy court. In general, the individual gets to keep his property, and his creditors end up with less money than they are owed.

In Chapter 13, the debtor retains ownership and possession of all of his or her assets, but must devote some portion of his or her future income to repaying creditors, generally over a period of three to five years. The amount of payment and the period of the repayment plan depend upon a variety of factors, including the value of the debtor’s property and the amount of a debtor’s income and expenses. Secured creditors may be entitled to greater payment than unsecured creditors.

Relief under Chapter 13 is available only to individuals with regular income whose debts do not exceed prescribed limits. If you are an individual or a sole proprietor, you are allowed to file for a Chapter 13 bankruptcy to repay all or part of your debts. Under this chapter, you can propose a repayment plan in which to pay your creditors over three to five years. If your monthly income is less than the state’s median income, your plan will be for three years unless the court finds “just cause” to extend the plan for a longer period. If your monthly income is greater than your state’s median income, the plan must generally be for five years. A plan cannot exceed the five-year limitation.

A Bankruptcy Exemption defines the property a debtor may retain and preserve through bankruptcy. Certain real and personal property can be exempted on “Schedule C” of a debtors bankruptcy forms, and effectively be taken outside the debtor’s bankruptcy estate. Bankruptcy Exemptions are available only to individuals filing bankruptcy. There are two alternative systems that can be used to “exempt” property from a bankruptcy estate, Federal Exemptions (available in some states but not all), and State Exemptions (which vary widely between states).

The advantages of Chapter 13 over Chapter 7 is stopping of all foreclosures and having an ‘accelerated’ mortgage being reinstated when the bankruptcy plan is fulfilled. Certain debts that are not dischargeable under Chapter 7 can be discharged under Chapter 13. Collection activities against non-filing co-debtors can also be completely stopped for the life of the case.

One of the major disadvantages of filing for Chapter 13 is that the record stays in the individual’s credit report for 10 years. During the life of the case, the debtor has to obtain the Chapter 13 Trustee’s permission in order to apply for any additional credit. These factors tend to discourage most creditors from lending money to such individuals.

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