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Chapter 13 of the Title 11 of the United States Bankruptcy Code governs a certain form of bankruptcy that allows debtors undergo a financial rehabilitation directed by a federal bankruptcy court. The aim of a Chapter 13 bankruptcy plan is to prepare a court-approved debt repayment plan for those individuals who have sufficient income and can repay some or all of their debts over a period of time. It is a typical form of debt consolidation.Table of contents
Filing Chapter 13 bankruptcy offers debtors a number of benefits over liquidation under Chapter 7. By filing Chapter 13 bankruptcy:
Any debtor (doesn’t matter whether self-employed or operate an unincorporated business) can file Chapter 13 bankruptcy as long as the:
An individual cannot file Chapter 13 bankruptcy or any other form of consumer bankruptcy if:
Chapter 13 bankruptcy remains on your credit report for 7 years from the date you file. Though Chapter 13 bankruptcy filing may have an initial negative impact on the debtor’s credit score, it improves over the life of the repayment plan. After the period of 7 years, all other negative reports on your credit file (like late payments on credit cards, foreclosures, etc.) must be removed.
If compared to Chapter 7 bankruptcy, your credit gets less hit in a Chapter 13 case. However, some limitations, that include inability to get high credit limit and borrow large amount of money, will be there until the bankruptcy stain completely disappears from your credit report.
To initiate a Chapter 13 bankruptcy case, a debtor must file a petition with a bankruptcy court serving within the area of the debtor’s primary residence. Unless and until the court orders otherwise, a petitioner needs to file:
The debtor also needs to file a certificate of credit counseling and a copy of the debt repayment plan that was organized by the credit counseling agency. Apart from all these documents, the debtor must also file a copy of the tax return or transcripts for the most recent tax year with the chapter 13 bankruptcy trustee.
Apart from filing the required schedules with the bankruptcy court, a petitioner also needs to fill out some bankruptcy forms and compile the information that follow:
In case the petitioner is married, he/she must gather all these information for his/her spouse regardless of whether they are filing a petition together, individually, or even if only one spouse is filing. Even if one spouse is filing, the income and expenses of the non-filing partner is required so that the court may get a clear idea about the household’ financial condition.
The official chapter 13 bankruptcy forms can either be purchased from legal stationary stores or downloaded from http://www.uscourts.gov/FormsAndFees/Forms/BankruptcyForms.aspx. The bankruptcy court doesn’t provide the forms.
In order to file Chapter 13 bankruptcy, you need to pay an amount of $235 with the bankruptcy court for case filing fee and a $6 for miscellaneous administrative fee. If the court permits, these can be paid in installments. However, the number of installments is limited to four and you must make the final installment within 120 days of filing the petition. Failure to pay these court fees may result in dismissal of your case.
Role of trustee
Whenever you file a petition with the bankruptcy court, a Chapter 13 bankruptcy trustee is appointed to administer your case. However, in some districts, the U.S. Trustee appoints a standing trustee to administer all Chapter 13 cases. The chapter 13 bankruptcy trustee evaluates the case, collects payments from the debtor and distributes them among the creditors.
Once you file chapter 13 bankruptcy, an ‘automatic stay’ is put in place, which immediately stops all collection attempts. However, as per your individual condition, the stay may be effective for a short period of time. As long as the ‘automatic stay’ is there, no creditor is allowed to initiate or continue lawsuits, wage garnishments, or even make phone calls for debt repayment. The bankruptcy clerk officially notifies about the automatic stay to those creditors whose names and addresses are provided by the debtor.
Chapter 13 bankruptcy also has a special automatic stay provision for co-debtors. Unless the court orders otherwise, a creditor cannot chase a co-debtor until the automatic stay is in effect.
Between 21 and 50 days of filing the petition, the Chapter 13 bankruptcy trustee holds a meeting of creditors. During the meeting, the petitioner needs to take an oath and answer all the questions of the trustee and the creditors. Here, a Chapter 13 bankruptcy attorney can help you prepare for the meeting and tell you what to expect there. It’s only an experienced bankruptcy attorney who can help you achieve the outcome that you anticipate. However, the meeting cannot be held if more than 60 days have passed after the filing of the petition.
The scope of discharge in a Chapter 13 bankruptcy case is very complex and has recently undergone major changes. Therefore, prior to filing, debtors should seek competent legal counsel from an experienced Chapter 13 bankruptcy attorney regarding any possibility of discharge.
A debtor is entitled to a Chapter 7 bankruptcy discharge as long as he/she:
A Chapter 13 bankruptcy discharge gives the debtor the required respite from all the debts as per the plan. However, there are certain exceptions. Debts that cannot be discharged in Chapter 13 bankruptcy are specifically long term obligations (such as mortgage), alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans, and debts arising from death or personal injury.
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