Chapter 13 Bankruptcy

A : Chapter 13 Bankruptcy allows a debtor to establish a court-approved plan to repay his or her debts—or at least, as much as possible. After that plan concludes, the court will discharge the debtor from further liability on most types of remaining unsecured debts. Some other ways Chapter 13 helps debtors include:

• The automatic stay. When a debtor files for Chapter 13 Bankruptcy, collection activities by his or her creditors must stop. This “automatic stay” prohibits such things as disconnecting utilities, evicting a tenant, foreclosing on a mortgage, filing or continuing a lawsuit, and even demanding repayment by telephone or mail.
• Benefits for homeowners. Filing for Chapter 13 Bankruptcy offers special advantages to homeowners facing foreclosure. The automatic stay prevents a lender from initiating foreclosure proceedings against the home. Additionally, the debtor is permitted to pay past-due installments on the mortgage over a reasonable period after filing.
• The repayment plan is binding. After a repayment plan is approved by the court, it is legally binding on both the debtor and his or her creditors. This means that creditors cannot seek to collect on the debtor’s debts outside of the Chapter 13 proceeding.

A : The repayment plan is the foundation of a successful Chapter 13 Bankruptcy. In designing a repayment plan, which must be approved by the Bankruptcy court, the U.S. Bankruptcy Code requires debtors to include certain provisions. Some of those requirements are described below.

• Timing. The repayment plan must be filed simultaneously with the petition or within 14 days thereafter.
• Duration. How long a repayment plan lasts depends on the debtor’s average monthly income over the six months before filing for Bankruptcy. If his or her income is less than the median income in the state where he or she lives, then the plan will typically be for three years. Otherwise, it will be for five years.
•  Extent of repayment. How much of a debt the plan must provide for depends on the type of debt at issue. For this purpose, debts are divided into three types of claims: a property claim, secured claim and unsecured claim. A priority claim must be paid in full under the repayment plan. Priority claims include such things as taxes, child support payments, and the costs of the Bankruptcy case.  A secured claim refers to a debt that is secured by an asset, known as the collateral. Car loans are secured debts, for example, because the lender has the right to repossess the car if the debtor does not repay the loan. Depending on the type of loan at issue, the debtor must either pay the current value of the collateral or make a full repayment of the loan. An unsecured claim is a debt that is not secured by collateral. Credit-card debt is one common example of unsecured debts. Unsecured claims do not need to be repaid in full under the plan, but the creditor must receive at least as much as it would have if the debtor had filed a Chapter 7 Bankruptcy.

A : As discussed above, the repayment plan in a Chapter 13 Bankruptcy will normally last for three or five years. After the end of that period, if the debtor has made all payments required under the plan, then the court will discharge him or her from further liability on most types of unsecured debts. The discharge doesn’t extend to all debts, however. Some major debts that are not discharged in a Chapter 13 Bankruptcy include child support and alimony, taxes, student loans, debts the debtor failed to list when filing, certain damages for Personal Injury or death caused by the debtor. Additionally, even as to debts that can normally be discharged in a Chapter 13 Bankruptcy, a discharge is not available in all circumstances, such as when 1) the debtor failed to complete a financial-management course, 2) the debtor received a discharge in a Chapter 7, 11, or 12 Bankruptcy within the previous four years or 3) the debtor received a discharge in another Chapter 13 Bankruptcy within the previous two years.