Chapter 13 Bankruptcy Law
Unlike a Chapter 7 Bankruptcy, a Chapter 13 Bankruptcy will provide an opportunity to get caught up on payments on a house or car.
Chapter 13 Bankruptcy, in short, is a court-approved, court-supervised, court-enforced, structured repayment of some, or all, of your debts over 36 to 60 months.
Similar to a Chapter 7 Bankruptcy, the filing a Chapter 13 Bankruptcy will stop all collection activity by your creditors, including lawsuits, garnishments and harassing phone calls. The length of Chapter 13 Bankruptcy and the amount that is paid into a Chapter 13 Bankruptcy will vary based on several factors.
Generally, the payment amount and duration of a Chapter 13 plan is determined based on the filer’s income, expenses, and assets... The proposed Chapter 13 plan must provide for payments to secured creditors and typically at least some minimal payment to general unsecured creditors, which include credit cards, medical bills, personal loans, utilities and payday loans. If applicable, the Chapter 13 plan must also include all delinquent mortgage payments, the balance of car payments, past due child support, attorney fees, and Chapter 13 Trustee fees. With few exceptions, you cannot leave debt out of your Chapter 13 Bankruptcy plan.
After filing a Chapter 13 Bankruptcy, unsecured creditors, represented by the Chapter 13 Trustee, and secured creditors will have the opportunity to review the proposed Chapter 13 Bankruptcy plan and raise objections. An objection is a problem or issue the Chapter 13 Trustee or a creditor has with the proposed Chapter 13 Bankruptcy plan. Once these objections are resolved, a bankruptcy judge will “confirm” the Chapter 13 plan. During the entire process, from the filing of the case to case confirmation to final month of the plan, the filer of the Chapter 13 Bankruptcy case must continue to pay his or her creditors through the Chapter 13 Trustee. So long as one is making the Chapter 13 plan payments you are protected from your creditors. Failure to make payments will result in dismissal of the case. Upon dismissal, the protection of Chapter 13 Bankruptcy is lost, and creditors can resume direct collection of their debts.
There are many factors that will determine how much someone will pay each month to the Chapter 13 Trustee, and how much any particular creditor will be paid back in the Chapter 13 Bankruptcy plan. The most common factor to determine the percent of your debt that will paid and the percent of your debt that will eliminated is your monthly income and monthly expenses. Any income that you have after your reasonable and necessary monthly living expenses must be paid to your creditors. If after making payment of your extra income for the life of your plan, there is unpaid debt it is eliminated or “discharged.”
Another important factor is non-exempt equity in your assets, including real estate. For example, if the law provides that a particular asset is not exempt and could be sold to pay creditors, you may consider filing a Chapter 13 to protect that particular asset. In a Chapter 13 Bankruptcy, you must pay back over the time of your plan the equivalent of the amount of money your creditors would have received had that particular asset been sold. But, as long as that amount of money is paid to unsecured creditors, you can keep the asset and any remaining debt is discharged.
In addition to consideration of your assets and monthly budget, Congress also requires the application of a “means test” to determine minimum payments to creditors in chapter 13. The “means test” was created by the 2005 bankruptcy reform legislation and is meant to be an “objective” test courts should use to determine whether or not a debtor is using his or her “best efforts” to repay as much debt as reasonably possible. The “means test” looks back over the six months prior to the bankruptcy and determines an “average” income over that time. The “means test” then allows certain deductions as determined by Census Data and other governmental data, such as average tax liability, average utility “allowances,” and average expenses related to the ownership of a home or a car. If your household makes above the average median income for the state in which you live, the percent of what you pay to general unsecured creditors may be determined by the results of the “means test.” In other words, the positive result of the monthly means test analysis multiplied by 60 months will determine who much total must be paid back to general unsecured creditors, and hence, how much of the overall percentage of general unsecured debt will be paid back.
Upon successful completion of the Chapter 13 Bankruptcy plan, one emerges debt free and current on his or her mortgage or car. To find out more about Chapter 13 Bankruptcy and see if it is the best option for you contact Consumer Attorneys today.
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