Chapter 13 Bankruptcy
More complicated, but more powerful than a Chapter 7 bankruptcy, a Chapter 13 bankruptcy can allow a person or couple to achieve important economic goals, not available in Chapter 7, such as:
- Stopping a mortgage foreclosure and bringing the mortgage current
- Stopping repossessions of automobiles
- Preserving non-exempt assets that would be lost in a Chapter 7.
- Reducing the balance on some car loans
- Eliminating unsecured liens and second mortgages
Some higher earning individuals are unable to file a Chapter 7 but can obtain relief and discharge of their debts through Chapter 13 bankruptcy. The hallmark of a Chapter 13 bankruptcy is “the plan” which reorganizes the person’s debts and provides for a period of repayment of no longer than 5 years. The law requires that the plan be affordable, and creditors must submit claims in order to be paid. Unless the debtor is able, the law does not require that creditors be paid in full.
Unlike a Chapter 7, a debtor can voluntarily dismiss a Chapter 13 bankruptcy at any time prior to discharge. Also, in many cases, the Court and Trustee will allow the plan to be modified to account for changes, such as a decrease, in the person’s income. In some circumstances, a Chapter 13 bankruptcy can be converted into a Chapter 7, with no further plan payments and a faster discharge of remaining debts.
In a Chapter 13 Bankruptcy, being required to appear before the Bankruptcy judge in person is rare. While there may be a hearing on issues such as plan confirmation, those are usually handled by the attorney without the client present. There is a Trustee’s Meeting of Creditors which the debtor does need to attend where routine questions are typically asked, and the debtor’s attorney is present to assist the debtor. The Meeting of Creditors rarely lasts more than 15 minutes and while creditors are permitted to attend, most do not. In fact, most often, no creditors attend the meeting.
While making plan payments during a Chapter 13 bankruptcy, creditors are under Court Order not to contact the debtor directly or to try to collect any funds outside the plan. This means that harassing phone calls, letters, and emails must stop upon filing of the bankruptcy. On the rare occasion when a creditor violates the Court’s Stay Order, the Bankruptcy Judge can impose sanctions and hold the creditor in contempt.
It would be extremely difficult for a person to file a Chapter 13 bankruptcy without the assistance of an attorney. Because there are many options for structuring a Chapter 13 bankruptcy, it is important that such cases are filed by experienced bankruptcy lawyers.