What is Chapter 13 Bankruptcy?
Chapter 13 proceeds much like Chapter 7, with the main difference being that a plan of reorganization must be prepared and confirmed by the court. The plan is drafted by the debtor’s attorney based upon the client’s goals with respect to reorganizing his financial situation, the amount and types of debts, and the debtor’s available excess income after expenses.
The “numbers” are absolutely critical to be able to accurately calculate and draft a plan. Consequently, the Chapter 13 debtor must work closely with the bankruptcy attorney and his staff to timely provide the financial information and documents upon which they must rely. See the client questionnaire with a checklist of documents to prepare your case.
The Chapter 13 Plan of Reorganization
The reorganization can propose various actions, including modifying some mortgages and car loans to the value of the collateral and reducing the interest rate, paying down taxes that would not be discharged in Chapter 7, and discharging unsecured debt. Litigation may also be involved in objecting to claims or suing to recover assets to fund the plan.
A meeting is held with the Chapter 13 trustee, who, unlike a Chapter 7 trustee who is interested in assets that could be sold and funds distributed, is more interested in determining the debtor’s disposable income so as to maximize the contribution to creditors in the plan. Generally, a plan is confirmed within three to four months after the meeting, with the debtor’s attorney negotiating objections from the Chapter 13 trustee who will make a recommendation for plan approval to the court.
The debtor will make payments into the court for three to five years, depending on the specific plan confirmed. Once the plan is completed, the court will issue a discharge order.
It is possible, in some circumstances, with court approval, to reduce the size of the monthly payment, or get a discharge order early if the debtor is close to completing the plan but cannot finish because of “hardship.”
In most cases, a Chapter 13 case can be dismissed by the debtor without needing court approval.