Chapter 13 FAQ's
FREQUENTLY
ASKED QUESTIONS ABOUT CHAPTER 13 BANKRUPTCY WHAT
IS CHAPTER 13 AND WHEN CAN IT BE USED?
WHAT DEBTS ARE NOT ERASED BY A BANKRUPTCY?
HOW
DOES CHAPTER 13 DIFFER FROM A CHAPTER 7 FOR A DEBTOR?
WHEN IS CHAPTER 13 PREFERABLE TO CHAPTER 7
FOR A DEBTOR?
HOW DOES CHAPTER 13 DIFFER FROM A PRIVATE
DEBT CONSOLIDATION SERVICE?
WHAT IS A CHAPTER 13 DISCHARGE?
WHAT IS CHAPTER 13 AND WHEN CAN IT BE USED?
Individuals may file chapter 13 bankruptcy petitions if they:
1. Reside, have a domicile, a place of business, or property in the United States, or a municipality;
2. Have a source of regular income; and on the date the petition is filed owe less than $290,525 in unsecured debts and less than $871,550 in secured debts. Note: The amounts given here are 2001 amounts. They are regularly adjusted to keep up with the cost of living.
Corporations and partnerships may not file a chapter 13 bankruptcy petition.
If you filed a prior bankruptcy petition and the prior proceeding was dismissed within the last 180 days, you may not be able to file a second petition and should check 11 U.S.C. sec. 109(g).
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WHAT DEBTS ARE NOT ERASED BY A BANKRUPTCY?
A full chapter 13 discharge granted upon the completion of all payments required in the plan discharges a debtor from all debts except:
1. debts that were paid outside of the plan and not covered in the plan,
2. debts for alimony, maintenance, or support,
3. debts for death or personal injury caused by the debtor's operation of a motor vehicle while unlawfully intoxicated,
4. debts for restitution or criminal fines included in a criminal sentence imposed on the debtor,
5. debts for most student loans or educational obligations that first became less than 7 years before the case was filed,
6. installment debts whose last payment is due after the completion of the plan, and
7. debts incurred while the plan was in effect that were not paid under the plan.
A partial chapter 13 discharge granted when a debtor is unable to complete the payments under a plan due to circumstances for which the debtor should not be held accountable, discharges the debtor from all debts except:
1. secured debts (i.e., debts secured by mortgages or liens),
2. debts that were paid outside of the plan and not covered in the plan,
3. installment debts whose last payment is due after the completion of the plan,
4. debts incurred while the plan was in effect that were not paid under the plan, and
5. debts that are not dischargeable under chapter 7 (these debts are listed below).
The following is a list of the most common debts that are not dischargeable under chapter 7:
1. Most tax debts and debts that were incurred to pay federal tax debts.
2. Debts for obtaining money, property, services, or credit by means of false pretenses, fraud, or a false financial statement, if the creditor files a complaint in the case (included here are debts for luxury goods or services and debts for cash advances made within 60 days before the case is filed.)
3. Debts not listed on the debtor's chapter 7 forms, unless the creditor knew of the case in time to file a claim.
4. Debts for fraud, embezzlement, or larceny, if the creditor files a complaint in the case.
5. Debts for alimony, maintenance, or support and, if the creditor files a complaint in the case, certain other divorce-related debts including property settlement debts.
6. Debts for intentional or malicious injury to the person or property of another, if the creditor files a complaint in the case.
7. Debts for certain fines or penalties.
8. Debts for educational benefits and student loans that became due within the last seven years, unless a court finds that not discharging the debt would impose an undue hardship on the debtor and his or her dependants.
9. Debts for personal injury or death caused by the debtor's operation of a motor vehicle while intoxicated.
10. Debts that were or could have been listed in a previous bankruptcy case of the debtor in which the debtor did not receive a discharge.
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DOES CHAPTER 13 DIFFER FROM A CHAPTER 7 FOR A DEBTOR?
The basic difference between chapter 7 and chapter 13 is that under chapter 7 the debtor's nonexempt property (if any exists) is liquidated to pay as much as possible of the debtor's debts, while in most chapter 13 cases a portion of the debtor's future income is used to pay as much of the debtor's debts as is feasible considering the debtor's circumstances. As a practical matter, under chapter 7 the debtor loses all or most of his or her nonexempt property and receives a chapter 7 discharge, which releases the debtor from liability for most debts. Under chapter 13, the debtor usually retains his or her nonexempt property, must pay off as much of his or her debts as the court deems feasible, and receives a chapter 13 discharge, which is broader than a chapter 7 discharge and releases the debtor from liability for several types of debts that are not dischargeable under chapter 7. However, a chapter 13 case normally lasts much longer than a chapter 7 case and is usually more expensive to the debtor. [BACK
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WHEN IS CHAPTER 13 PREFERABLE TO CHAPTER 7
FOR A DEBTOR?
Chapter 13 is usually preferable for a person who - (1) wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time, (2) has valuable nonexempt property or has valuable exempt property securing debts, either of which would be lost in a chapter 7 case, (3) is not eligible for a discharge under chapter 7, (4) has one or more substantial debts that are dischargeable under chapter 13 but not under chapter 7, or (5) has sufficient assets with which to repay most debts, but needs temporary relief from creditors in order to do so.
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HOW DOES CHAPTER 13 DIFFER FROM A PRIVATE
DEBT CONSOLIDATION SERVICE?
In a chapter 13 case, the bankruptcy court can provide aid to the debtor that private debt consolidation services cannot provide. For example, the court has the authority to prohibit creditors from attaching or foreclosing on the debtor's property, to force unsecured creditors, to accept a chapter 13 plan that pays only a portion of their claims, and to discharge a debtor form unpaid portions of debts. Private debt consolidation services have none of these powers.
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WHAT IS A CHAPTER 13 DISCHARGE?
It is a court order releasing a debtor from all dischargeable debts and ordering creditors not to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay. There are two types of chapter 13 discharges: (1) a full or successful plan discharge, which is granted to a debtor who completes all payments called for in the plan, and (2) a partial or unsuccessful plan discharge, which is granted to a debtor who is unable to complete the payments called for in the plan due to circumstances for which the debtor should not be held accountable. A full chapter 13 discharge is broader and discharges more debts than a chapter 7 discharge, while a partial chapter 13 discharge is similar to a chapter 7 discharge. [BACK
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