Chapter 13 Overview
Chapter 13 provides consumers with a way to consolidate debt under federal law and repay creditors a portion of what is owed over time. The idea behind Chapter 13 is that the consumer makes sufficient income to pay all current living expenses (rent, food, car, utilities, etc.), but not enough to pay off all debts in full or comply with creditor's demands. In Chapter 13, living expenses are paid first, and then whatever is left over goes into the consolidation plan. The plan is not based on what you owe (in most cases), it is based on your ability to repay creditors.
The calculation of your plan payments involves many variables, but most importantly it is based on your income and expenses. Whatever is left at the end of the month goes into the plan, even if it only pays creditors pennies on the dollar. Chapter 13 can be particularly useful for consumers with assets over the exemption amounts, or non-dischargeable debts.
The Chapter 13 Process
In Chapter 13, you must submit a plan in which you set out a budget detailing your take-home pay and monthly living expenses. Any excess income is paid to the bankruptcy trustee who then distributes money to creditors on a pro-rata basis. The plan lasts for 36 to 60 months, unless your debts are fully repaid in a shorter period of time. At the end of the Chapter 13 plan, any amounts still owing on your unsecured debts are forgiven.
Mortgage Arrearages: Another benefit of Chapter 13, specifically for homeowners, is that back mortgage payments can be put into the Chapter 13 plan and paid off over the plan period, rather than all at once. So long as you can continue to make regular post-petition mortgage payments, the bank can't foreclose on your house because you chose to put mortgage arrearages into a Chapter 13 plan. In fact, Chapter 13 was originally designed for this purpose, to prevent foreclosures.
Tax Debt: Typically government debts are not dischargeable, however there are great benefits to putting tax debt into a Chapter 13 plan. Chapter 13 freezes interest and penalties on taxes. This gives you a chance to budget out a repayment plan in real dollars, the payments you make go directly to reduce the principle. Most people trying to repay back taxes are fighting an uphill battle with interest and penalties working against them, but in Chapter 13, you get a break from the government and pay off just what you owe on the day you filed the case.
The Chapter 13 Discharge
Generally speaking, a Chapter 13 debtor is entitled to a discharge upon completion of all payments under the Chapter 13 plan. As a general rule, the discharge releases the debtor from all debts provided for by the plan or disallowed, with the exception of certain debts referenced in 11 U.S.C. § 1328.
Debts not discharged in Chapter 13 include certain long term obligations (such as a home mortgage), debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor's conviction of a crime. To the extent that they are not fully paid under the Chapter 13 plan, the debtor will still be responsible for these debts after the bankruptcy case has concluded.
Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for restitution or damages awarded in a civil case for willful or malicious actions by the debtor that cause personal injury or death to a person will be discharged unless a creditor timely files and prevails in an action to have such debts declared nondischargeable. [11 U.S.C. §§ 1328, 523(c); Fed. R. Bankr. P. 4007(c).]
The discharge in a Chapter 13 case is somewhat broader than in a Chapter 7 case. Debts dischargeable in a Chapter 13, but not in Chapter 7, include debts for willful and malicious injury to property (as opposed to a person), debts incurred to pay nondischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings [ 11 U.S.C. § 1328(a)].
Chula Vista bankruptcy attorney Jeffrey D. Poindexter has the skill and experience to guide you through the Chapter 13 process.
Material on this site should not be considered legal advice or an engagement of the Law Offices of Jeffrey D. Poindexter. The information contained herein is of a general nature and may not apply in your particular circumstances. An attorney-client relationship is created ONLY after: (A) the attorney agrees to accept your case; AND (B) you have entered into a signed written contract for services; AND (C) you have paid all agreed retainer fees. An attorney-client relationship can only be established by mutual written consent with the attorney.
This office is a debt relief agency that helps people file for bankruptcy under the Bankruptcy Code.
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