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Chapter 13 Bankruptcy Process

An individual may be transferred to Chapter 13 bankruptcy from Chapter 7 or they may file a Chapter 13 bankruptcy petition. A trustee is then appointed to administer the case. The petitioner must file a repayment plan with the petition or no more than 15 days after filing. About a month or so after filing, a meeting of the creditors is held to discuss interests of creditors and for the debtor to answer questions. Unsecured creditors must file a claim no more than 90 days after the meeting of the creditors to have their debt included for repayment. The debtor must complete an approved debtor education course within 45 days of the meeting of the creditors. A repayment plan hearing is held in front of the court no later than 45 days after the meeting of creditors. If the court approves the plan, the debtor begins to make payments to the trustee who distributes funds to creditors according to the plan. Creditors may make motions to modify the plan before or after the hearing. The court may dismiss the case if at the repayment plan hearing or if the debtor fails to make payments according to the plan. If the repayment plan is met and all other obligations are met, then the debtor will be discharged from all debts, with the exception of those excluded from Chapter 13 discharge.

What Is A Repayment plan?

A repayment plan is submitted by the debtor and approved by the court. It requires that the debtor make regular payments to the trustee to pay off debts in a 3 to 5 year time frame. Most debt is discharged if the debtor follows the payments under the repayment plan. The debts qualify as (1) priority, (2) secured or (3) unsecured.

  1. Priority debts, such as tax payments, must be paid in full under the plan.
  2. Secured debts have special rules of repayment that likely require the help of an attorney.
  3. Unsecured debts do not need to be paid in full so long as the debtor will pay all disposable income under the plan for the committed time period and the unsecured creditor receives as much under the plan as they would receive under a Chapter 7 bankruptcy liquidation.

What if you fail to make payments on the repayment plan?

Failing to make a repayment plan payment gives the trustee the right to file a dismissal of the case with the Bankruptcy Court. If the case is dismissed, the creditors can continue collection activities and all interest that accrued even while the debtor was in bankruptcy will apply to the debt. However, the debtor can prevent a dismissal by showing they can continue to pay under the agreed plan or if the debtor can convince the court to accept a new plan or if the court decides to discharges the debtor’s debts because of an undue hardship (in limited situations).

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