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.
Chapter 13 Bankruptcy Process | Filing a Petition
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.
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Chapter 13 Bankruptcy Process | Appointing a Trustee
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. This stops 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, as long as the debtor complies with the Plan, whatever debts are left over will be discharged. 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. If it does, the Court approves the Plan at a confirmation hearing. After the Plan is approved, the debtor continues 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, whatever debts remain are fully discharged and wiped clean, subject to some exceptions.
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Contact Our Buffalo Bankruptcy Attorneys for More Information
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.