What happens in Chapter 13 bankruptcy?

Chapter 13 bankruptcy is considered financial reorganization and is typically designed for those who are behind on a house or car payment or possibly behind on property taxes, IRS debt, or child support. Filing for Chapter 13 gives an individual a three to five year time frame to become current on any back owed payments and allows an individual to keep all of their assets. Chapter 13 is also an excellent choice for those who do have an ability to repay at least some of their unsecured debt. Chapter 13 is a prudent way to obtain financial stability over the short term and long term. Please click on the specific questions below that you may have or scroll through the entire page. When you are ready, feel free to contact the law offices of York and Associates to set up a consultation regarding your specific situation and rest in the knowledge that Mr. York will represent you in a responsible way.

How do I Qualify?

Generally, anyone with a regular source of income will qualify for Chapter 13.

How Long Does Chapter 13 Last?

Chapter 13 will last for a three to five year period depending on the facts of your case.

Do I Have a Hearing?

You will have a hearing at the Chapter 13 Trustee’s office with your attorney present about 30-45 days after your case is filed (the “341 Meeting of Creditors” although creditors very rarely attend the hearing). The Judge will not be present at your hearing. You will be placed under oath and asked a series of questions about what caused your financial difficulty (i.e. loss in income or increase in expenses, etc…) and the accuracy of the legal documents filed on your case. Mr. York will prepare you for the questions that will be asked at the hearing.

A confirmation hearing is held by the court within at least 45 days after the hearing with the Chapter 13 Trustee. Typically, if all legal requirements are met on your Chapter 13, your presence is not required at the confirmation hearing.

Who is the Chapter 13 Trustee?

The Chapter 13 Trustee is the government’s bankruptcy administrator who verifies with your attorney that your bankruptcy case complies with the law. In addition, the Chapter 13 Trustee will accept your Chapter 13 Plan payment and distribute portions of the payment among all of your creditors included in the Chapter 13.

What Happens to My Property?

In Chapter 13, you keep all of your property and do not stand to lose any property. The Chapter 13 Trustee has no legal right to take your property away. Moreover, as long as you stay current on your house and car payments, the mortgage and car finance companies cannot take away your house and car. See Protecting Your Property-House and Car for a more detailed discussion.

What Debts are Included in My Chapter 13 Plan Payment?

All of your debts are consolidated into your Chapter 13 Plan and you make one monthly payment to the Chapter 13 Trustee who will then pay your creditors on your behalf. Your car is generally included in your Chapter 13 Plan payment in contrast to the direct payments that you will still make on your monthly living expenses and house payment.

All of your unsecured debt is included in the Chapter 13 Plan and these creditors are legally barred from demanding payment from you outside of your Chapter 13. Your general unsecured creditors typically are paid only pennies on the dollar in the Chapter 13 Plan with the rest being eliminated upon successful completion of Chapter 13.

What Will My Chapter 13 Payment Be?

Your Chapter 13 payment requires all of your disposable income. Calculating your disposable income requires the application of several complex legal tests. Mr. York can provide a detailed answer on what your Chapter 13 payment will be. Click here to contact Mr. York.

Can I Save for Retirement While in Chapter 13?

Yes. Your disposable income required for your Chapter 13 payment does not include money that you contribute to a 401K retirement plan or other comparable retirement plans. Nor does your disposable income include money used to pay off a 401K loan.

What Ultimately Happens to My Debt in Chapter 13?

Upon successful completion of Chapter 13, you will be current on any back owed house or car payments or any back owed property tax, IRS debt, or child support. With respect to your general unsecured debt, the portions that you were unable to pay back through Chapter 13 are eliminated.

The court will mail you a copy of your discharge papers so please keep this important document for your records to serve as documentation that you are not liable on your debts.

What Happens to Student Loans?

Chapter 13 realistically gives a three to five year student loan deferment period. Student loan companies are not allowed to solicit direct payments from you outside of your Chapter 13 payment. They are treated as general unsecured creditors in bankruptcy for the purposes of receiving distributions from the Chapter 13 Trustee. Unlike your other general unsecured debt, student loans are typically non-dischargeable once the Chapter 13 is discharged.

Is IRS Debt Dischargeable?

Maybe. Income tax obligations older than three years past due, in which the tax was assessed more than 240 days prior to the filing of a bankruptcy and for which the tax return was filed more than two years prior to the filing of the bankruptcy petition are generally discharged.

Can I Get a Lower Car or Merchandise Payment

Under certain scenarios, you might be able to pay your car loan off at the replacement value of the car as opposed to the amount still owed on the car finance loan. For instance, if the replacement value for your car is $10K, you owe $20K on the loan, and the car was bought more than 910 days before the filing of the case, you are allowed to pay the car off at the lower $10K in Chapter 13. The same rule also applies to secured loans for furniture and other merchandise, although the time frame is 365 days as opposed to 910 days. Also, this scenario is always available for car title loans regardless of the time frame.

In addition, under Chapter 13, you may be able to entirely avoid liens off of your property. For example, if you own household goods that are exempt under bankruptcy law and pledge the goods as collateral to a creditor in exchange for money, the lien you granted to the creditor can be avoided under bankruptcy law meaning that you keep the property without paying the money loaned back to the creditor.

What About My Credit?

Your credit can be improved while in Chapter 13. Simple things such as staying current on your house and/or rent payment or having a credit card that you pay in full each month reflect very well on your credit. Also, staying current on your Chapter 13 payment is important as this will reflect well on your credit. Your credit score should actually improve through the filing of the case because all balances, records of late payments, etc… are removed from your credit report and the account is listed as “included in Chapter 13 Wage Earner Plan.” See Bankruptcy and Your Credit for more advice.

Contact Us With Any Questions

You very well might have more questions on Chapter 13. Mr. York is ready to answer all your questions. Contact us at any time. We offer flexible payment plans to accommodate your budget.

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