Chapter 13 Bankruptcy

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a repayment plan for individuals with regular income and unsecured debt less than $336,900 and secured debt less than $1,010,650.  The debtor keeps his property and makes regular payments to the Chapter 13 trustee out of future income to pay creditors over time (3-5 years). Repayment in Chapter 13 can range from 10% to 100% depending on the debtor’s income and the make up of the debt. Certain debts that cannot be discharged in Chapter 7 can be discharged in Chapter 13. Chapter 13 also provides a mechanism for individuals to prevent foreclosures and repossessions, while catching up on their secured debts.

Why Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is a repayment plan that protects the debtor from collection action during the case and discharges, any unpaid balance of dischargeable debts at the end of the plan.  In Chapter 13, the debtor can impose a debt management plan on creditors, which creditors must accept, stopping the running of interest on credit card debt. The court will enforce the plan against uncooperative creditors.

Compare the benefits of 13 with debt management or debt repayment plans.

  • The discharge in Chapter 13 even covers some debts that cannot be discharged in Chapter 7. It is a powerful tool for debtors to regain control of their financial lives and to get a meaningful fresh start.
  • Chapter 13 permits the debtor time to pay debts that can’t be discharged in either chapter, like recent taxes or back child support; to cure defaults on home mortgages; and to eliminate that part of a lien that is greater than the value of the asset at the beginning of the case.
  • Unlike credit management plans outside of bankruptcy, creditors don’t get to choose whether to be bound by the plan. Think of Chapter 13 as a court enforced debt management plan.

Who should consider Chapter 13 Bankruptcy?

Debtors choose to file a repayment plan under Chapter 13 when

  • they owe debts not dischargeable in Chapter 7 ( such as taxes or child support)
  • they have liens that are larger than the value of the assets securing the debt
  • they are behind on car or house payments
  • their assets are worth more than the available exemptions
  • their income may trigger a substantial abuse objection

The Chapter 13 plan does not have to pay debts in full; it can provide for only fractional payment to unsecured creditors. How much the plan has to pay to creditors is a function of the confirmation tests.

The Bankruptcy Code does require that priority claims be paid in full. The most common priority claims are recent taxes and family support.

Who is eligible for Chapter 13?

To file Chapter 13, you must be

  • an individual (no corporations or partnerships);
  • have a regular income greater than your reasonable living expenses
  • have liquidated, unsecured debts not exceeding $336,900 and secured debts not exceeding $1,010,650

What debts can be discharged in bankruptcy?

The scope of the discharge is different in each chapter. The Bankruptcy Code after October, 2005 makes the Chapter 13 discharge only slightly more encompassing.

Other advantages of Chapter 13 Bankruptcy

Put most simply, most unsecured debt is dischargeable. Most secured debt survives bankruptcy as a charge on the property to which it attaches unless a court order modifies the lien or the lien is paid in Chapter 13.

Chapter 7 or Chapter 13 Bankruptcy?

Not dischargeable in Chapter 7 are recent taxes; family support; debts to spouse arising from divorce; student loans ; drunk driving judgments; criminal fines or restitution; or debts incurred by fraud or intentional wrongdoing.

The complete list of non-dischargeable debts is found at 11 U.S.C. 523

In Chapter 13, only family support, restitution, student loans, old taxes for which no return was filed and drunk driving judgments are non dischargeable.

The rules on the dischargeability of debts incurred by fraud are now nearly the same as in Chapter 7.
However, the Chapter 13 plan must provide for payment in full of priority taxes and past due support.

Discharge of debt in Chapter 7 Bankruptcy

Everything else is dischargeable: loans, credit card debts, judgments, medical bills, old income taxes.
More on treatment of different kinds of debt in bankruptcy. Remember, liens and mortgages survive the bankruptcy: the debtor personally has no further liability for the debt, but the lien (a charge on the asset that is the
collateral) survives as an interest in the asset. In appropriate circumstances, liens can be avoided because they impair an exemption or because the lien doesn’t really attach to any value in the collateral.

Deciding to file bankruptcy can be a tough decision. Almost everyone confronting the decision vacillates from “Fight” to “Flee”: struggle to pay the debts versus get relief from the constant pressure and start over.

Call the Ridings Law Firm for an experienced Chapter 13 Bankruptcy Attorney in St. Louis, MO!

Legal issues and bankruptcy questions are frequently complex and individual. The information contained here is intended to be educational only: it is not intended to be legal advice nor does it create an attorney client relationship between the viewer and the firm. You should consult with a bankruptcy attorney licensed to practice in your state for advice about your particular situation. See Law on the
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