Chapter 13 what does it mean

The Chapter 13 plan period will vary based on whether your family income is generally above or below the median income for your state of residence. If your income is below the median, you'll usually have to take the 3-year plan. The Chapter 13 plan , or simply the payment plan, is the heart of a Chapter 13 case. Chapter 13 is an attempt to "reorganize" your debt or your joint debts with your spouse over time. It's a great tool for the debtor who is behind in house payments or car payments. Those payments can be caught up with the payment plan over time, thereby saving the house from foreclosure or the car from repossession.

The plan will also include any past-due priority claims , such as alimony, child support, or recent income taxes. The Chapter 13 plan can also include payments toward unsecured debt such as credit cards and medical bills. A calculation is applied to your income and expenses to determine if you have any disposable income after all your other obligations are met.

You're expected to devote your disposable income to your plan payment, and that extra money will be used to pay unsecured creditors. If you don't have enough disposable income to pay your unsecured debt in full over the course of the payment plan, the court will just require that your full disposable income go toward these payments.

As long as your unsecured creditors get as much as they would have under Chapter 7, you'll meet your obligations. The Chapter 13 trustee acts as the main point of contact for a debtor.

The trustee will review the proposed payment plan and has the authority to challenge the plan in bankruptcy court if they believe that it is improper. If the Chapter 13 plan is confirmed by the bankruptcy court, the trustee acts as an intermediary between the debtor and creditors receiving payments. Specifically, the debtor makes payments each month to the trustee. The trustee then divides up the payment, as established in the Chapter 13 plan, and issues payments to the creditors.

When you file for Chapter 13 bankruptcy, you must begin making payments to the trustee within 30 days, even if the court as not yet approved the plan. Chapter 13 bankruptcy carries with it a few restrictions which are not present in Chapter 7 bankruptcy, the monthly plan payment being the most obvious. In addition, you will not be allowed to incur any more debt without court approval. As in any situation where you still hold liens against major assets, you will have to maintain insurance coverage on those assets.

You may be left with debts that are not discharged , such as student loans. Chapter 13 discharge is personal, meaning that any cosigners may still be obligated to any outstanding debts once your Chapter 13 payment plan ends. When you file for Chapter 13 bankruptcy, cosigners on any of the debts included in your bankruptcy filing are automatically protected from creditors until your Chapter 13 bankruptcy case is closed. United States Courts.

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After the meeting of creditors, the debtor, the chapter 13 trustee, and those creditors who wish to attend will come to court for a hearing on the debtor's chapter 13 repayment plan. Unless the court grants an extension, the debtor must file a repayment plan with the petition or within 14 days after the petition is filed. A plan must be submitted for court approval and must provide for payments of fixed amounts to the trustee on a regular basis, typically biweekly or monthly.

The trustee then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims. There are three types of claims: priority, secured, and unsecured. Priority claims are those granted special status by the bankruptcy law, such as most taxes and the costs of bankruptcy proceeding.

In contrast to secured claims, unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by the debtor. The plan must pay priority claims in full unless a particular priority creditor agrees to different treatment of the claim or, in the case of a domestic support obligation, unless the debtor contributes all "disposable income" - discussed below - to a five-year plan. If the debtor wants to keep the collateral securing a particular claim, the plan must provide that the holder of the secured claim receive at least the value of the collateral.

If the obligation underlying the secured claim was used to buy the collateral e. Payments to certain secured creditors i. The debtor should consult an attorney to determine the proper treatment of secured claims in the plan. The plan need not pay unsecured claims in full as long it provides that the debtor will pay all projected "disposable income" over an "applicable commitment period," and as long as unsecured creditors receive at least as much under the plan as they would receive if the debtor's assets were liquidated under chapter 7.

If the debtor operates a business, the definition of disposable income excludes those amounts which are necessary for ordinary operating expenses. The "applicable commitment period" depends on the debtor's current monthly income. The applicable commitment period must be three years if current monthly income is less than the state median for a family of the same size - and five years if the current monthly income is greater than a family of the same size. The plan may be less than the applicable commitment period three or five years only if unsecured debt is paid in full over a shorter period.

Within 30 days after filing the bankruptcy case, even if the plan has not yet been approved by the court, the debtor must start making plan payments to the trustee. If any secured loan payments or lease payments come due before the debtor's plan is confirmed typically home and automobile payments , the debtor must make adequate protection payments directly to the secured lender or lessor - deducting the amount paid from the amount that would otherwise be paid to the trustee.

No later than 45 days after the meeting of creditors, the bankruptcy judge must hold a confirmation hearing and decide whether the plan is feasible and meets the standards for confirmation set forth in the Bankruptcy Code.

Creditors will receive 28 days' notice of the hearing and may object to confirmation. While a variety of objections may be made, the most frequent ones are that payments offered under the plan are less than creditors would receive if the debtor's assets were liquidated or that the debtor's plan does not commit all of the debtor's projected disposable income for the three or five year applicable commitment period.

If the court confirms the plan, the chapter 13 trustee will distribute funds received under the plan "as soon as is practicable.

If the court declines to confirm the plan, the debtor may file a modified plan. The debtor may also convert the case to a liquidation case under chapter 7.

If the court declines to confirm the plan or the modified plan and instead dismisses the case, the court may authorize the trustee to keep some funds for costs, but the trustee must return all remaining funds to the debtor other than funds already disbursed or due to creditors. Occasionally, a change in circumstances may compromise the debtor's ability to make plan payments. For example, a creditor may object or threaten to object to a plan, or the debtor may inadvertently have failed to list all creditors.

In such instances, the plan may be modified either before or after confirmation. Modification after confirmation is not limited to an initiative by the debtor, but may be at the request of the trustee or an unsecured creditor.

The provisions of a confirmed plan bind the debtor and each creditor. Once the court confirms the plan, the debtor must make the plan succeed. The debtor must make regular payments to the trustee either directly or through payroll deduction, which will require adjustment to living on a fixed budget for a prolonged period.

Furthermore, while confirmation of the plan entitles the debtor to retain property as long as payments are made, the debtor may not incur new debt without consulting the trustee, because additional debt may compromise the debtor's ability to complete the plan. A debtor may make plan payments through payroll deductions. This practice increases the likelihood that payments will be made on time and that the debtor will complete the plan.

In any event, if the debtor fails to make the payments due under the confirmed plan, the court may dismiss the case or convert it to a liquidation case under chapter 7 of the Bankruptcy Code. The court may also dismiss or convert the debtor's case if the debtor fails to pay any post-filing domestic support obligations i. The bankruptcy law regarding the scope of the chapter 13 discharge is complex and has recently undergone major changes.

Therefore, debtors should consult competent legal counsel prior to filing regarding the scope of the chapter 13 discharge. A chapter 13 debtor is entitled to a discharge upon completion of all payments under the chapter 13 plan so long as the debtor: 1 certifies if applicable that all domestic support obligations that came due prior to making such certification have been paid; 2 has not received a discharge in a prior case filed within a certain time frame two years for prior chapter 13 cases and four years for prior chapter 7, 11 and 12 cases ; and 3 has completed an approved course in financial management if the U.

The court will not enter the discharge, however, until it determines, after notice and a hearing, that there is no reason to believe there is any pending proceeding that might give rise to a limitation on the debtor's homestead exemption. The discharge releases the debtor from all debts provided for by the plan or disallowed under section , with limited exceptions.

Creditors provided for in full or in part under the chapter 13 plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations. As a general rule, the discharge releases the debtor from all debts provided for by the plan or disallowed, with the exception of certain debts referenced in 11 U. Debts not discharged in chapter 13 include certain long term obligations such as a home mortgage , debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor's conviction of a crime.

To the extent that they are not fully paid under the chapter 13 plan, the debtor will still be responsible for these debts after the bankruptcy case has concluded. Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for restitution or damages awarded in a civil case for willful or malicious actions by the debtor that cause personal injury or death to a person will be discharged unless a creditor timely files and prevails in an action to have such debts declared nondischargeable.

The discharge in a chapter 13 case is somewhat broader than in a chapter 7 case. Debts dischargeable in a chapter 13, but not in chapter 7, include debts for willful and malicious injury to property as opposed to a person , debts incurred to pay nondischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings. After confirmation of a plan, circumstances may arise that prevent the debtor from completing the plan.

In such situations, the debtor may ask the court to grant a "hardship discharge. Generally, such a discharge is available only if: 1 the debtor's failure to complete plan payments is due to circumstances beyond the debtor's control and through no fault of the debtor; 2 creditors have received at least as much as they would have received in a chapter 7 liquidation case; and 3 modification of the plan is not possible.

Injury or illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge. The hardship discharge is more limited than the discharge described above and does not apply to any debts that are nondischargeable in a chapter 7 case. Main content Chapter 13 - Bankruptcy Basics This chapter of the Bankruptcy Code provides for adjustment of debts of an individual with regular income.

Background A chapter 13 bankruptcy is also called a wage earner's plan. Advantages of Chapter 13 Chapter 13 offers individuals a number of advantages over liquidation under chapter 7. How Chapter 13 Works A chapter 13 case begins by filing a petition with the bankruptcy court serving the area where the debtor has a domicile or residence.

In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must compile the following information: A list of all creditors and the amounts and nature of their claims; The source, amount, and frequency of the debtor's income; A list of all of the debtor's property; and A detailed list of the debtor's monthly living expenses, i.

The Chapter 13 Plan and Confirmation Hearing Unless the court grants an extension, the debtor must file a repayment plan with the petition or within 14 days after the petition is filed. Making the Plan Work The provisions of a confirmed plan bind the debtor and each creditor. The Chapter 13 Discharge The bankruptcy law regarding the scope of the chapter 13 discharge is complex and has recently undergone major changes.

The Chapter 13 Hardship Discharge After confirmation of a plan, circumstances may arise that prevent the debtor from completing the plan. 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.

In North Carolina and Alabama, bankruptcy administrators perform similar functions that U. The bankruptcy administrator program is administered by the Administrative Office of the United States Courts, while the U.

For purposes of this publication, references to U.