WHAT IS A CHAPTER 13 BANKRUPTCY?
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Chapter 13 of the Bankruptcy Code provides for relief for the individual debtor (living and breathing – no corporations, LLC’s) who has a stable stream of income and can afford to make payments over 3 to 5 years. The key is the individual has some surplus income and he or she pledges to pay all he or she can during the life of their bankruptcy.
As in Chapter 7 cases, the Chapter 13 debtor gets protection from both the Automatic Stay [see section on Automatic Stay] and upon successful completion of his or her Plan permanent protection from the Chapter 13 Discharge. [see section on how Chapter 7 and Chapter 13 discharges differ. Also the “Hardship Discharge”]
THE PLAN Chapter 13 is a re-organization and requires the proposal and “Confirmation” [approval by the court] of a Chapter 13 Plan. The Petition, Schedules and Statements filed in Chapter 13 cases are identical or very similar to those filed in other Chapters. The Plan lays out how much the Debtor proposes to pay, who may get paid from those funds and in which order, and for other relief, such as the removal of a junior lien or restructuring of some loans. It is the road map for the Court, Creditors and Standing Chapter 13 Trustee will follow during the life of the bankruptcy. [see Players in Chapter 13, Standing Trustee]
Chapter 13 discharges differ. Also the “Hardship Discharge”]
Why should I file for Chapter 13 relief and make payments up to five years?
- No liquidation. For a debtor who has assets he does not want liquidated in Chapter 7. E.g. a home.
- Ability to cure a default in mortgages and avoid foreclosure [section on how that works]
- Control over the case. Strictly voluntary, only Debtors may proposed a Plan and creditors do not “vote” on it. May be converted to Chapter 7 if needed or voluntarily dismissed by the debtor [see limitations on conversion and dismissal]
- Unique ability to remove or “strip” a junior mortgage in many cases [see Lien Stripping]
- Unique protection for a co-debtor who is not himself in bankruptcy [See 1301 Co-Debtor Stay]
- Ability in many cases to pay only the actual value for secured property, such as a car loan [see “cram down” section]
- Unique ability to discharge divorce property provisions
- Can get bankruptcy relief even if not eligible to file Chapter 7 due to a prior discharge.
- Ability to pay your attorney from cash flow that otherwise would pay creditors
- Add others