Generally, there are two types of personal bankruptcies that can be filed — Chapter 7 and Chapter 13. When a Chapter 7 bankruptcy is filed, the expectation is that all eligible debts will be extinguished. However, not all debtors are allowed to file under Chapter 7. There are income limits. For those that do not qualify for Chapter 7, debt relief can still be obtained by filing under Chapter 13. Here are a few frequently asked questions about Chapter 13.
Q: How is Chapter 13 different from Chapter 7?
As noted, unlike a Chapter 7 bankruptcy, debtors who file a Chapter 13 do not “zero-out” their qualified debts. Rather Chapter 13 debtors are expected to make payments on their debts over a three-year or five-year time period. Discharge is given by the bankruptcy court when the payment plan is successfully completed.
Q: How much will I have to pay?
In simple terms, a debtor must pay what the debtor can afford to pay. In practice, the answer is complicated because the amount a debtor can afford depends on income and expenses, like food and utilities, and the debts. With respect to the debts, how the payments are calculated and divided among the creditors depends on the types of debt and the percentages of each category compared to the total. Priority debts have to be paid in full during the payment period. Examples include court fees, child support and unpaid taxes. Other debts called "secured debts" must also generally be paid in full as the payment period progresses. Examples include mortgages and car loans. On the other hand, "unsecured debts" like credit cards or medical bills do not have to be paid in full during the payment period. Most debtors pay a small percentage towards these types of debts. At the end of the payment period, the remainder of any unsecured debt is discharged.
Q: What Is the Process for Creating a Payment Plan?
When a debtor files under Chapter 13, a payment plan must be submitted with the initial bankruptcy filing or very shortly thereafter. Thus, the initial payment plan is drafted by your experienced bankruptcy attorney. However, the payment plan will be reviewed by all creditors, and some creditors may object. The Trustee assigned to your case will also have input and may challenge the plan. Ultimately, the plan must be approved by the bankruptcy judge. Thus, payment plans are often adjusted and, sometimes, withdrawn and resubmitted.
Q: When Do I Start Making Payments?
Payments begin immediately -- usually about 30 days after the filing the bankruptcy petition. The payment amount is based on the payment plan that is submitted
Q: How Do I Make Payments?
Chapter 13 payments are made to a designated court officer at the bankruptcy court. Payments to individual creditors are then sent out by the court.
Q: What if I Lose My Job During the Payment Period?
If a debtor's life circumstances change significantly during the payment period, a debtor can file papers with the bankruptcy court asking the court to modify the payment plan.
Contact an Experienced Debt Relief and Debtor Rights Attorney
For more information, contact the Debtor's Rights attorneys at Guardian Litigation Group. We will fight for you. We can help with an individual creditor or a group. We can help if you need debt reorganization or debt discharge. We have the tools and experience you need. Our Mission is to provide unparalleled legal services and support for those being crushed by their debts and harassed by their creditors. We can be reached via our contact page.