Chapter 13 Bankruptcy

Experienced Buffalo Bankruptcy Attorney Explains The Chapter 13 Bankruptcy Process

Chapter 13 bankruptcy is one of the most common forms of bankruptcy filed. It’s available to individuals and some businesses. Chapter 13 is a type of bankruptcy that focuses on reorganizing the debtor’s debt, rather than discharging or wiping it away (although discharge is still possible). If you’re in the Buffalo area and thinking about filing for Chapter 13 bankruptcy, the Cole, Sorrentino, Hurley, Hewner & Gambino, P.C., will provide you with advice on whether it’s the right bankruptcy to file and if it is, help you get it done.

The Chapter 13 Bankruptcy Process

As long as an individual’s debts are below a certain size (about $400,000 for unsecured debts and about $1.1 million for secured debts), the debtor can use the Chapter 13 bankruptcy process. Businesses that are a separate legal entity from an individual, such as a corporation, may not use Chapter 13. However, a sole proprietorship and some partnerships can use it. Also, a debtor cannot file under Chapter 13 if they already filed for Chapter 13 in the last two years or Chapter 7 within the last four years. Finally, since one of the major features of Chapter 13 bankruptcy is creating a payment plan, the debtor must have a reliable source of income in order to use Chapter 13.

The process begins with the filing of a petition. The debtor must also submit the required fees, which usually amounts to a few hundred dollars, along with other important documents, such as lists of assets, debts, sources of incomes and current bills.

After the petition is filed, a trustee will be appointed to administer the Chapter 13 bankruptcy. The trustee’s primary job will be to collect payments from the debtor and distribute them to the creditors. The filing of the petition also starts the automatic stay, which will stop all attempts by creditors to collects the debtor’s debts. The automatic stay is very useful because it can stop harassing phone calls, debt collection lawsuits and wage garnishments.

Within 15 days of filing the Chapter 13 bankruptcy petition, the debtor will submit a Chapter 13 Plan. This Plan will show how the debtor intends to pay back their debts over the next three to five years. After five years are up, as long as the debtor complies with the Plan, whatever debts are left over will be discharged, like in a Chapter 7 bankruptcy. During the time the Plan is in place, the debtor must use all disposable income to pay back the debts.

About three to seven weeks after the Chapter 13 bankruptcy petition has been filed, the trustee will hold a creditor meeting. During that meeting, the debtor will be put under oath and asked questions by the trustee and creditors about the debtor’s financial situation and the debtor’s proposed Plan.

Within 45 days after the creditor meeting, the Bankruptcy Court will ensure the Plan complies with all legal requirements and if it does, approve the Plan at a confirmation hearing. After the Plan is approved, the debtor will continue making payments in accordance with the Plan for the next three to five years (the debtor will sometimes have to start making payments under the proposed Plan even before it’s approved).

Once the Plan has been fully completed (and other requirements met), whatever debts remain are fully discharged and wiped clean, subject to some exceptions.

Why Should I File Chapter 13 Bankruptcy?

Compared to Chapter 7 bankruptcy, Chapter 13 has several advantages. One of the biggest advantages for the average individual is stopping a mortgage foreclosure. While the Chapter 13 bankruptcy process is ongoing, the debtor has a chance to become current with all payments. However, if the foreclosure process is completed before the debtor can get fully caught up on mortgage payments, the debtor may still lose the house to foreclosure.

The list of debts that can be discharged under Chapter 13 is longer than in Chapter 7, which might be an advantage for some. Also, a Chapter 13 bankruptcy will be on your credit history for only seven years (instead of 10, like a Chapter 7 bankruptcy).

The biggest advantage involves keeping certain property. Since it’s a reorganization instead of a liquidation bankruptcy, as long as the debtor complies with the approved Plan, the debtor will be able to keep all property, with none of it lost to creditors through the bankruptcy proceeding.

Why Shouldn’t I File Chapter 13 Bankruptcy?

If you don’t have a reliable and steady income, you probably won’t be eligible for Chapter 13 bankruptcy and even if you were, you risk being unable to fully comply with your payment Plan. If you’re eligible for Chapter 7 bankruptcy and you don’t have any assets you really want to keep, Chapter 13 may not be the best decision for you – that’s because you’re more likely to get a larger amount of debt discharged under Chapter 7 than you are under Chapter 13. Lastly, Chapter 13 bankruptcy can take a long time, up to five years. Compare that to a Chapter 7 bankruptcy, which can usually be completed in a few months.

Have Questions about Chapter 13 Bankruptcy?

Deciding on whether to file for Chapter 13 bankruptcy? You should speak with an award winning New York bankruptcy attorney to help you with your decision. You can reach one of our experienced bankruptcy attorneys at Cole, Sorrentino, Hurley, Hewner, & Gambino, P.C., through our website or by calling us today.