A Chapter 13 Bankruptcy is the reorganization bankruptcy available to individuals with regular income whose unsecured debts do not exceed $307,625.00 and whose secured debts do not exceed $922,975.00. A Chapter 13 involves a payment plan, whereby the debtor makes monthly payments to a court appointed trustee, who in turn pays the creditors all or a portion of the debts owed. The debtor is required to pay what he or she can afford to pay and must adhere to a budget. It is an effective tool for people who can afford to pay some but not all of their debts. It is most commonly used when a homeowner has fallen behind in mortgage payments and cannot negotiate feasible arrangements to catch up the payments. It will immediately stop foreclosure proceedings garnishments and repossessions, as well as any creditor collection actions. Typical Chapter 13 Bankruptcy plans range from 36 to 60 months. The following article is intended to provide a general understanding of how a Chapter 13 Bankruptcy works.
(Must be done prior the date that your house is scheduled to be sold)
Your attorney files a Chapter 13 Bankruptcy petition in the United States Bankruptcy Court. The filing of your petition initiates your case and creates an Automatic Stay that prohibits your creditors from taking any actions against you to collect on your debts. This is what stops the sale of your home, or any garnishments, or any impending repossessions. After your petition is filed, you make the next scheduled payments to your secured creditors and remain current with them. You do not at this point need to pay any missed payments and will no longer be contacted by your creditors.
(Usually done simultaneously with Step 1)
Your attorney files your schedules, statement of financial affairs, and Chapter 13 plan in the Bankruptcy Court. The schedules are detailed listings of your assets and liabilities and income and expenses. The statement of financial affairs contains your answers to several questions which the Bankruptcy Court requires that explain your financial situation. The Chapter 13 plan is the repayment plan that you submit to the Court that permits you to pay back the money you owe at a rate that you can afford. This is where you pay back your missed mortgage payments, taxes, and/or car payments. The schedules, statement of financial affairs, and Chapter 13 plan are prepared by your attorney with the information that you provide at your initial interview.
(30 days after your Chapter 13 plan is filed)
You begin making the payments proposed in your Chapter 13 plan to the United States Trustee. It is essential that you remain current with these payments (and the payments to your secured creditors) for the Court to approve your plan.
(About 2 months after the date that your petition is filed)
You attend the meeting of creditors at the Office of the United States Trustee. At this meeting, the trustee will ask you several general questions, and will examine the feasibility of the Chapter 13 plan that you proposed. Your attorney will accompany you to this meeting and will assist with any issues that may arise.
(About 3 months after the date that your petition is filed)
A hearing is held at the United States Bankruptcy Court to confirm or approve your Chapter 13 plan. If your plan is confirmed, you will continue to make payments to the trustee and to your secured creditors. After you complete the required payments to the trustee, you will receive a discharge that cancels your obligation to pay certain debts that were not paid in full by your Chapter 13 plan.