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Chapter 13 bankruptcy is often referred to as the "individual debt
adjustment" chapter. It is the chapter selected in approximately
one-third of all the bankruptcies filed around the country each year.
As in a Chapter 7 bankruptcy,
the debtor is seeking a discharge, which is the document mailed to the
debtor and all creditors by the Clerk of the Bankruptcy Court toward
the end of the case advising that the debtor is no longer legally
responsible for repaying discharged debts. In a Chapter 13 bankruptcy
proceeding, the debtor is essentially saying to his or her creditors
that his or her household generates a certain sum, such as $5,000 per
month, that it spends a certain sum, say $4,600 per month, on its
normal going forward obligations such as rent or mortgage, car
payments, utilities, food and groceries, insurance, medical,
transportation, etc., and, accordingly, has net funds of say $400 left
over at the end of each month to offer to repay to the pre-bankruptcy
creditors, all of whom are put on the proverbial back burner when the
bankruptcy petition is first filed.
If you have any questions about bankruptcy, call us at 610-251-2500.
Chapter 13 Bankruptcy Criteria And Tests Used By The Bankruptcy Court.
The Chapter 13 bankruptcy plan states that for a fixed period of
time--a minimum of thirty-six months and up to a maximum of sixty
months--the debtor will forward the net cash surplus, $400 in the
example used above, to the Chapter 13 bankruptcy trustee assigned to
the case, and the bankruptcy trustee will distribute the funds on a
monthly basis to creditors pursuant to the terms of the proposed
"plan," which is an approximately ten page "fill in the blanks" style
document which divides creditors into certain groups or classes. For
example, if the debtor is behind on his or her mortgage payments, the
mortgage company will be in a certain class. Other secured creditors,
such as car lenders or lessors, may be in their own class. If the
debtor owes recent taxes to a governmental tax agency, the tax agency
will be in a certain class. All general unsecured nonpriority creditors
will be together in another class. If after the specified plan period,
whether it is thirty-six months, sixty months, or some period of time
in between, the debtor has made all of his or her plan payments, he or
she will receive his or her discharge at the conclusion of the case.
Once in Chapter 13, the debtor must remain current on his or her
going forward obligations, such as mortgage payments, vehicle payments,
and current taxes. Failure to remain current on post-petition
obligations constitutes grounds to either permit secured lenders to
foreclose or repossess their collateral, or to dismiss the case from
bankruptcy altogether.
If you have any questions about bankruptcy, call us at 610-251-2500.
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