Explanation of the Chapter 13 Process
A chapter 13 bankruptcy is one form of bankruptcy available to individuals. Cases can be filed by one person or jointly with a spouse. The purpose for choosing to file a chapter 13 bankruptcy depends upon several factors. Those factors may include, among other things, the debtor’s income, the amount of debt owed, and the property which the debtor intends to keep through the bankruptcy. Regardless of why a chapter 13 bankruptcy is chosen, its function and purpose are the same.
A chapter 13 bankruptcy will last anywhere from three (3) to five (5) years. During that time the debtor will make continual payments to the Trustee. Those payments will be used by the Trustee to pay the creditors. In some instances only secured creditors (e.g. mortgage lender) are repaid. In other instances either a portion or all of the unsecured creditors (e.g. credit cards) are paid together with the secured creditors.
A chapter 13 bankruptcy may allow the debtor an opportunity to alter contract terms with certain non-mortgage creditors. That could include a reduction in the amount of the debt to be repaid and a change in the interest rate paid on certain secured claims.
The bankruptcy begins with the filing of a petition with the Bankruptcy Court. The date the case is filed is referred to as the “petition date.” Once the case is filed, an “automatic stay” is put into place which protects the debtor and his or her property from actions of most, if not all, of the debtor’s creditors. However, should the debtor fail to fully perform during the bankruptcy case, the Court terminate the automatic stay as to property owned by the debtor which secures claims of creditors.
In addition to the petition, the debtor must also file schedules, a proposed plan, and other documents. All of these filings must be done in a timely fashion unless additional time is granted by the Court. The proposed plan sets forth how the debtor wishes to treat the different classes of claims and specific creditors. Those classes include priority claims (e.g. taxes or child support), secured claims (e.g. mortgage or automobile loan), and general unsecured creditors (e.g. credit card lenders). In order to proceed with the bankruptcy case, the proposed plan must be confirmed by the Court.
As part of a chapter 13 bankruptcy proceeding, the debtor must appear at a Section 341(a) Meeting of Creditors. During the meeting of creditors, the debtor will be questioned by the Trustee about the schedules, documents, and proposed plan filed in the case. Among other things, the Trustee may also ask about the debtor’s employment, income, expenses, and financial affairs. Creditors of the debtor may also appear at the meeting and ask questions concerning their claim and the collateral securing the claim, if any. The meeting is recorded and the statements made by the debtor are made under oath.
The Trustee as well as the creditors will have the opportunity to object to the proposed plan if the parties are not pleased with the treatments for the claims. In addition to these actions, the debtor may object to claims filed by creditors, avoid certain liens against exempt property, and exercise other rights available to the debtor under the Bankruptcy Code. After all objections and other pending matters have been resolved, the Court may approve confirmation of the plan.
Upon confirmation of the chapter 13 plan, the Trustee will administer the plan pursuant to the terms and provisions of the confirmation order and plan. Using the money paid in by the debtor, the Trustee will make payments to the creditors as provided in the plan. If the debtor fails to make the required plan payments, the Trustee will be unable to pay the creditors. The failure to make plan payments may result in the termination of the automatic stay or dismissal of the case.
Prior to making the final payment due under the plan, the debtor must complete a Financial Management Course. A certificate of completion of the course must be filed with the Court. Once the final payment is paid to the Trustee and all of the claims are paid, the debtor will have completed the plan. To obtain a discharge the debtor must file a motion for discharge. The motion will state that the debtor has completed the necessary requirements and conditions and is entitled to receive a discharge. Following the entry of an order granting the motion, an order discharging debtor will be entered by the Court.
For more detailed information about your specific situation you should seek the assistance of an attorney.