Chapter Thirteen Bankruptcy

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Chapter 13 bankruptcy, entitled Adjustment of Debts of an Individual With Regular Income, is designed for an individual debtor who has a regular source of income. Chapter 13 is often preferable to chapter 7 because it enables the debtor to keep a valuable asset, such as a house, and because it allows the debtor to propose a "plan" to repay creditors over time usually three to five years. Chapter 13 is also used by consumer debtors who do not qualify for chapter 7 relief under the means test.


At a confirmation hearing, the court either approves or disapproves the debtor's repayment plan, depending on whether it meets the Bankruptcy Code's requirements for confirmation. Chapter 13 is very different from chapter 7 since the chapter 13 debtor usually remains in possession of the property of the estate and makes payments to creditors, through the trustee, based on the debtor's anticipated income over the life of the plan. Unlike chapter 7, the debtor does not receive an immediate discharge of debts. The debtor must complete the payments required under the plan before the discharge is received. The debtor is protected from lawsuits, garnishments, and other creditor actions while the plan is in effect. The discharge is also somewhat broader (i.e., more debts are eliminated) under chapter 13 than the discharge under chapter 7.



Chapter Thirteen Eligibility

Any individual, even if operating an unincorporated business or self-employed, is eligible for chapter thirteen relief as long as the individual's secured debts are less than $1,081,400 and unsecured debts are less than $360,475. 11 United States Code, Sub-Section- 109(e). These amounts are adjusted periodically to reflect changes in the consumer price index. A partnership or corporation may not be a chapter thirteen debtor.

An individual can't file under chapter thirteen or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor's willful failure to comply with orders of the court or appear before the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 United States Code, Sub-Section- 109(g), 362(d) and (e). Also, no individual may be a debtor under chapter thirteen or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from a approved credit counseling agency either in a group or individual briefing. 11 United States Code, Sub-Section- 109, 111. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.

NOTES:

The "current monthly income" received by the debtor is a defined term in the Bankruptcy Code and means the average monthly income received over the six calendar months before commencement of the bankruptcy case, including regular contributions to household expenses from nondebtors and including income from the debtor's spouse if the petition is a joint petition, but not including social security income or certain payments made because the debtor is the victim of certain crimes. 11 United States Code, Sub-Section- 101(10A).

In North Carolina and Alabama, bankruptcy administrators perform similar functions that U.S. trustees perform in the remaining forty-eight states. The bankruptcy administrator program is administered by the Administrative Office of the United States Courts, while the U.S. trustee program is administered by the Department of Justice. For purposes of this publication, references to U.S. trustees are also applicable to bankruptcy administrators.

Section 507 sets forth 10 categories of unsecured claims which Congress has, for public policy reasons, given priority of distribution over other unsecured claims. return to text A fee of $25 is charged for converting a case under chapter 13 to a case under chapter 7.

1) Find out about The Chapter 13 Plan and Confirmation Hearing

2) Learn about Chapter Thirteen Discharge

Learn the different Types Of Bankruptcy Cases

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