Chapter 13 Bankruptcy is a for individuals to reorganize their finances. Even though it is a bankruptcy, it allows an individual to not only discharge debt but become current on secured and priority debt. Discharge means the Debtor is no longer responsible for the debt. In order to get a discharge, the Debtor has to successfully complete their plan.
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Before filing a Chapter 13 Bankruptcy, a person must obtain credit counseling from a credit counselor that has been approved by the United States Trustee’s office. In addition, once the bankruptcy is filed, the Debtor must attend a financial management class before discharge, usually provided by the Chapter 13 Trustee. Once the Debtor is in Chapter 13 Bankruptcy, he/she will be required to attend a creditor’s meeting. This meeting is conducted by the Chapter 13 Trustee’s office. The Trustee will require the Debtor to provide documents such as current pay stubs, a current tax return, a driver’s license, and Social Security card.
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Chapter 13 Bankruptcy will remain on a Debtor’s credit report for up to 7 years from the date of filing.
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Chapter 13 stops mortgage companies from foreclosing on real estate and allows the debtor to become current on the mortgage by paying that arrearage back over 36 to 60 months through their Chapter 13 Plan. The Debtor will start making their regular mortgage payment after their Chapter 13 Bankruptcy is filed and make their Trustee payment to bring the arrearage current. After the Chapter 13 Bankruptcy is filed, the regular mortgage payments start again fresh without late fees. If however, the Debtor makes a late mortgage payment after the bankruptcy is filed, they will be assessed a late payment. If the Debtor becomes behind on their mortgage payment after the bankruptcy is filed, the creditor has the right to file a Motion to Lift Stay and ask the Court if they can lift the stay to allow them to again start foreclosure proceedings. Usually, the mortgage company’s attorney will work out an agreement whereby the Debtor can become current on the post-petition payments over a six-month period. The problem with this scenario is that if the Debtor gets behind again, the stay lifts and the mortgage company is allowed to start foreclosure proceedings again and the Debtor will no longer have bankruptcy protection against the mortgage company. The bankruptcy rules have recently changed to make mortgage companies accountable for all their post-petition charges.
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Chapter 13 stops repossession of vehicles and allows the Debtor in some cases to pay only the value of the vehicle at a lower interest rate. If the vehicle has been repossessed before filing bankruptcy, and the vehicle has not been sold, the creditor has to return the vehicle. If the Debtor completes their bankruptcy plan the lien holder has to give title to the Debtor once the discharge order has been signed.
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Chapter 13 allows a Debtor to pay an IRS tax lien. The Debtor will pay the secured portion of an IRS Proof of Claim at the current rate of interest. The lien amount is determined by the equity a Debtor has in both real and personal property. If a Debtor completes his/her plan, the lien will be released after the Debtor’s discharge.
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Chapter 13 bankruptcy will stop pending lawsuits and in most cases void judgment liens.
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All Chapters under the Bankruptcy Code are a complicated process. An individual contemplating bankruptcy should consult and retain an experienced bankruptcy attorney to handle their case.
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