Robert B. Harris, Attorney at Law
Bankruptcy and Debt Relief Attorney

Chapter 13 Bankruptcy

A Chapter 13 bankruptcy is a reorganization bankruptcy for consumer debtors. In a Chapter 13, the debtor files a repayment plan in which the debtor proposes terms to repay its creditors over a period of time that cannot exceed 60 months. The eligibility requirements for a Chapter 13 bankruptcy are less strict compared to those for a Chapter 7 bankruptcy. The main restriction is that a debtor must have less than approximately $360,000.00 in unsecured debt (i.e. medical bills and credit cards) and less than $1.1 million in secured debt (i.e. real estate mortgages or vehicle loans).

Chapter 13 bankruptcies are typically filed when a debtor is trying to STOP the FORECLOSURE of their home and pay off the arrears through the bankruptcy plan, a debtor makes too much money to file a Chapter 7, a debtor is protecting assets that are too valuable to exempt in a Chapter 7, or the debtor is ineligible for a discharge in a Chapter 7 due to a previous Chapter 7 discharge within eight (8) years.

Chapter 13 bankruptcies provide the debtor with many of the same protections of a Chapter 7 bankruptcy; however, those same protections are more expansive. For example, the AUTOMATIC STAY in a Chapter 13 provides limited protection for a non-bankrupt person who is jointly liable on a consumer debt with the debtor. In Chapter 7, the AUTOMATIC STAY does not protect a non-bankrupt co-signor. Debtors can also receive a discharge in a Chapter 13 bankruptcy. A Chapter 13 discharge is broader and a debtor can discharge certain debts they could not in a Chapter 7. An example is a property settlement owed to a former spouse. Lastly, debtors are eligible for a Chapter 13 discharge more frequently than a Chapter 7 discharge (although some tricky timelines apply depending on when previous bankruptcies in which the debtor received a discharge were filed). Debtors can even file Chapter 13 bankruptcy when they are ineligible for a Chapter 13 discharge if they need to reorganize their finances!

The pre- and post-filing credit counseling requirements apply to Chapter 13 debtors, too.

Again, a Chapter 13 bankruptcy is a personal reorganization in which debtors make payments to their creditors for a period of time that cannot exceed 60 months. The payments are made to the Chapter 13 trustee who disburses the money according to the debtor’s repayment plan. A Chapter 13 repayment plan gives debtors the ability to reduce the interest rate on secured claims they are paying for through the plan (i.e. a motor vehicle loan); pay off back taxes (i.e. income taxes or real estate taxes); past-due child support or maintenance obligations; pay off accrued arrearages on real estate mortgages; and in some circumstances, STRIP OFF SECOND MORTAGES and other JUNIOR LIENS against to their residence.  

The Chapter 13 Plan:

You should think of the Chapter 13 plan like a champagne fountain. The debtor’s creditors are the glasses and the debtor’s payments are the champagne. There are numerous glasses, but only so much champagne will be poured out.  At the top of the fountain, are administrative and secured claims. Examples of administrative claims are the Chapter 13 trustee’s fee and your attorney’s fee. A secured claim might be a vehicle loan or mortgage arrears the debtor is proposing to pay off during the plan. Priority claims, like certain delinquent income taxes or past-due child support, are generally paid next. At the bottom of the fountain are the debtor’s general unsecured creditors (i.e. medical bills, credit cards, cash store loans, etc). How much champagne, or money, each creditor ultimately gets is the product of numerous factors. To keep things simple, administrative, secured, and priority claims generally receive 100% of their claim, while general unsecured debts are subject to discharge and might receive less than 100% of their claim. 

You should consult with an attorney to determine whether a Chapter 13 bankruptcy is in your best interest. Only an attorney can properly assess how your particular facts would play out in a Chapter 13. No two cases are the same, and your case might be different than the simple example I provided above.   

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