Chapter 13 Focuses On Arranging A Fair Plan
The goal of Chapter 13 is to restructure the debtor’s obligations through a plan the debtor offers to creditors. The debtor must complete either a three-year or five-year “commitment period” before a discharge can be issued. The court will appoint a trustee to oversee the case.
Why Chapter 13 Can Be A Favorable Option
The three most common reasons for filing bankruptcy under Chapter 13 include:
- To stop a foreclosure and save a home by curing mortgage arrears
- To “strip off” a second trust deed and other junior liens if the value of the debtor’s home is less than the balance owed on the first trust deed
- To seek debt relief when the debtor earns too much to file under Chapter 7
Filing a petition also grants an automatic stay. While the stay is in effect, creditors generally cannot begin or continue any foreclosure, lawsuit, repossession, or wage garnishment. In addition, Chapter 13 can stop a creditor from trying to collect from others, such as a co-signor, who may be jointly liable for consumer debt.
Qualifying For Chapter 13 Relief
Chapter 13 is available only for individuals with regular income to fund a monthly plan payment. Therefore, a sole proprietor can file Chapter 13, but a corporation or limited liability company (LLC) may need to file under Chapter 11 instead.
Furthermore, the debtor must have enough income to cover regular monthly living expenses as well as the monthly plan payments.
Creating And Negotiating A Structured Repayment Plan
In Chapter 13 cases, debtors offer a payment plan, which is like a contract, to creditors. In this plan, the debtor can offer to pay a portion or the entirety of debt over time. Once the plan is completed, the debtor will usually receive a discharge of the remaining unsecured debt.
Before the plan can proceed, the trustee will hold a creditor meeting. Issues regarding the plan are usually resolved during or shortly after the creditor meeting. If there are no plan objections, a confirmation order is submitted to the court after the creditor meeting.
If the trustee or a creditor objects to the plan, the court will hold a confirmation hearing. If the debtor is unable to modify the plan to satisfy the objection, the judge will determine whether the plan should proceed. If the judge does not approve the plan, the debtor may try to amend the plan, convert the case to Chapter 7, or let the case be dismissed.
Once the court confirms the plan, it is the debtor’s responsibility to ensure that the trustee receives plan payments. Upon completion of the plan, the court will discharge appropriate unsecured debts. If the debtor fails to make plan payments, however, the court may order the debtor’s employer to withhold plan payments from the debtor’s paycheck, sending the funds to the Chapter 13 trustee instead.
Make The Most Of This Opportunity
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