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Chapter 13 bankruptcy is a wage earner's plan. Chapter 13 allows individuals with regular income to propose a plan to repay all or part of their debts. The plan sets forth an agreement to make installment payments to creditors over a three to five year period. After the plan is confirmed by the Court, the law forbids creditors from starting or continuing collection efforts. After the plan is paid in full the debtor(s) will be granted a "discharge" from all dischargeble debts.
Individuals generally choose Chapter 13 Bankruptcy to save their homes from foreclosure by curing delinquent mortgages by paying them over time in a Bankruptcy Payment Plan. Others file Chapter 13 Bankruptcy to reschedule the delinquent payments on other secured debts like their car payment or truck payment by reducing the payment by extending the payment over the life of the Chapter 13 Payment Plan. Sometimes Chapter 13 Bankruptcy is used to protect a debtor's family member such as a mother or father that had co-signed for the loan from being sued by the creditor. In addition, some people have to file Chapter 13 Bankruptcy because their income exceeds the means test, while other people want to consolidate unsecured debt and feel the right thing to do is pay creditors at least part of what they owe.
A Chapter 13 Bankruptcy case begins the same way as a Chapter 7 Bankruptcy case, by the debtor filing a bankruptcy petition and schedules. In a Chapter 13, however, the debtor is also required to file a proposed Chapter 13 Payment Plan. Debtors also generally must file a certificate of credit counseling, paycheck stubs for the last 60 days, and submit a copy of their most recent income tax returns to the Trustee. Married people are also permitted to file a Joint Petition if they so choose. Once the petition is filed the "Automatic Stay" goes into effect to protect the debtor(s) from creditors, unless the debtor(s) have been repeat filers, and as a result have lost some of the protections afforded by the automatic stay. Sometimes a motion can be filed to restore the automatic stay to protect debtors assets from creditors.
Once the petition is filed, it generally takes about three (3) months to get through the Confirmation of the Plan, and the Meeting of Creditors, but the case stays open until the plan is paid in full. Plans are three (3) to five (5) years in length and debtors are discharged after the plan is paid in full and the Debtors have completed the Financial Management training.
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