Chapter 13

The Chapter 13 process can be very complicated and a debtor should always seek the assistance of an attorney to ensure that the case is handled properly. While every case is different, there is a general time line that is followed in all cases. A Chapter 13 is a reorganization of personal debt much like a Chapter 11 is for business debt. This means that a debtor will make monthly payments to the Trustee for a period of three to five years. This payment is determined by assessing the income and expenses of the debtor.

The assumption is that all disposable income will be paid to the Trustee to be distributed to creditors. The Trustee will distribute this money to creditor based on the priority and amount of the creditor’s claim. If the debtor makes all the payments required under the Chapter 13 Plan then any remaining debt will be discharged.

There are lots of push and pull factors in a 7 vs 13. The biggest push factor is income. If the debtor doesn’t qualify for a 7 because they make too much money, they are oftentimes forced into a 13. But oftentimes the “superdischarge” of a chapter 13 will pull debtors from a 7 into a 13. For example, taxes can be put into a chapter 13 plan, debtor can save home’s in a chapter 13 plan, sometimes 2nd mortgages can be removed in a chapter 13 plan, an automatic stay which protects co-debtors, amongst other things.

The actual process is much like that in a Chapter 7. Upon filing an automatic stay goes into place preventing any collection efforts by creditors. This means that creditors cannot sue, garnish or even call the debtor. Then there will be the Meeting of Creditors.

Approximately three weeks after the Meeting of Creditors, there will be a Confirmation Hearing. At the Confirmation Hearing, the Judge presiding over the case will hear from the debtor’s attorney and from the Trustee regarding any disputed matters. In some cases, the debtor and objecting parties are unable to resolve their dispute and it is necessary to take the issue to hearing so that a Judge may resolve it. More commonly, however, the parties will come to an agreement and it will not be necessary to take the issue to hearing. Once all outstanding objections are resolved the Judge will sign off on the Plan and the debtor will make the agreed upon payments to the Trustee.

Read more about the Long Term Financial Advantages of Chapter 13 Bankruptcy.