A chapter 13 bankruptcy is
also called a wage earner's plan. It enables individuals with regular income
to develop a plan to repay all or part of their debts. Under this chapter,
debtors propose a repayment plan to make installments to creditors over
three to five years. If the debtor's current monthly income is less than the
applicable state median, the plan will be for three years unless the court
approves a longer period. If the debtor's current monthly income is greater
than the applicable state median*, the plan generally must be for five
years. In no case may a plan provide for payments over a period longer than
five years. During this time the law forbids creditors from starting or
continuing collection efforts.
What are the
advantages of a Chapter 13 bankruptcy?
Chapter 13 offers
individuals a number of advantages over liquidation under chapter 7. Perhaps
most significantly, chapter 13 offers individuals an opportunity to save
their homes from foreclosure. By filing under this chapter, individuals can
stop foreclosure proceedings and may cure delinquent mortgage payments over
time. Nevertheless, they must still make all mortgage payments that come due
during the chapter 13 plan on time. Another advantage of chapter 13 is that
it allows individuals to reschedule secured debts (other than a mortgage for
their primary residence) and extend them over the life of the chapter 13
plan. Doing this may lower the payments. Chapter 13 also has a special
provision that protects third parties who are liable with the debtor on
"consumer debts." This provision may protect co-signers. Finally, chapter 13
acts like a consolidation loan under which the individual makes the plan
payments to a chapter 13 trustee who then distributes payments to creditors.
Individuals will have no direct contact with creditors while under chapter
13 protection.
Who is eligible for
a Chapter 13 bankruptcy?
Any individual, even if
self-employed or operating an unincorporated business, is eligible for
chapter 13 relief as long as the individual's unsecured debts are less than
$336,900 and secured debts are less than $1,010,650. 11 U.S.C. § 109(e).
These amounts are adjusted periodically to reflect changes in the consumer
price index. A corporation or partnership may not be a chapter 13 debtor.
Id.
An individual cannot file
under chapter 13 or any other chapter if, during the preceding 180 days, a
prior bankruptcy petition was dismissed due to the debtor's willful failure
to appear before the court or comply with orders of the court or was
voluntarily dismissed after creditors sought relief from the bankruptcy
court to recover property upon which they hold liens. In addition, no
individual may be a debtor under chapter 13 or any chapter of the Bankruptcy
Code unless he or she has, within 180 days before filing, received credit
counseling from an approved credit counseling agency either in an individual
or group briefing. 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.
Chapter 20?
Let's start out by telling you there is no
'Chapter 20" in the bankruptcy Code just so you won't be looking around or
thinking we don't know our stuff. A so-called "Chapter 20" bankruptcy is the
process filing of a Chapter 7 bankruptcy which will discharge unsecured
debts and then filing a Chapter 13 bankruptcy to allow the debtor to deal
with arrears for secured obligations (mortgages, car loans, etc.). The 2005
Bankruptcy Reform Act attempts to limit Chapter 20 bankruptcies by imposing
limits on the filing of successive bankruptcies. Under current law a Chapter
13 bankruptcy may be filed only once every two years, and three years must
pass after the filing of a Chapter 7 bankruptcy before a Chapter 13 filing.
Some debtors attempt to circumvent this restriction by filing for Chapter 13
protection while the Chapter 7 petition is still pending. That option is not
available in all courts. In a Chapter 20 bankruptcy, debtors should be aware
that missing even one mortgage payment after filing the initial Chapter 7
petition may cost them their ability to save their home in a subsequent
Chapter 13 filing.
* In new York State $44,587 for a one person household, $54,397 for two
persons, $64,673 for three and $77,664 for four based upon the
Census Bureau Median Family Income By Family
Size (Cases
Filed Between February 1, 2008, and March 16, 2008, Inclusive
Application of
the law is always a little more complex than reading the law. Keith, Shapiro & Ford has practiced
bankruptcy law for over 25 years. If you, a friend or family member
is contemplating bankruptcy, has been served with legal papers or actually has a
foreclosure scheduled why not call
us to schedule a free consultation. Knowing your rights and options will allow
you to more easily sort out a complex situation.
