A chapter 13 bankruptcy case requires debtors to file a plan of reorganization, also called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter of the Bankruptcy Code, debtors propose a repayment plan to make monthly installment payments to creditors over three to five years.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), is an act of the 109th Congress that made several significant changes to the United States Bankruptcy Code. One of its primary purposes, thanks to the massive amount of money spent by bank and credit card company lobbyists, was to affect how individuals qualify for filing bankruptcy, i.e., make it harder for individuals to file.
While the community of lenders intended to disable Chapter 13 as the chapter of choice for individual debtor rehabilitation, they only partially succeeded. Chapter 13 is alive and still a viable option for individuals, even after BAPCPA. Chapter 13 operates like a consolidation loan where the debtor makes the plan payments to a chapter 13 trustee who distributes to creditors their share. During the entire course of the plan, whether three or five years, Chapter 13 debtors are protected by the automatic stay and creditors may have no direct contact with them.
Any individual, even if self-employed or operating an unincorporated business, is eligible to file a Chapter 13 bankruptcy case if the individual’s unsecured debts are less than $394,725 and secured debts are less than $1,184,200. These amounts are adjusted periodically to reflect changes in the consumer price index. A business association such as a corporation, limited liability company, or partnership is ineligible to be a Chapter 13 debtor.
An individual may not file under any chapter of the bankruptcy code, including chapter 13, if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court; or the case was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.
Also, no individual may be a debtor under Chapter 13 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. There are exceptions in emergencies or where the U.S. trustee has determined that there are insufficient approved agencies to provide the required counseling. Any debt management plan formulated during a required credit counseling session must be filed with the bankruptcy court.
If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” (1) If the debtor’s current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. During this time the law forbids creditors from starting or continuing collection efforts.
Chapter 13 offers individuals many significant advantages, including the opportunity for individuals to save their homes from foreclosure. Individuals may then cure delinquent mortgage payments over time although they must still make all mortgage payments that come due during the chapter 13 plan in a timely fashion.
Another advantage of chapter 13 is that it allows individuals to reschedule secured debts other than a mortgage for their primary residence over the life of the Chapter 13 plan, which may lower payments in many cases. Chapter 13 also protects co-signers – third parties who are liable with the debtor on “consumer debts.”
Individuals considering bankruptcy as a debt relief solution often assume that bankruptcy will not provide the necessary help in a timely enough fashion to be truly effective and worthwhile. This could not be farther from the truth and is a myth of bankruptcy. It is important to consult with an experienced Utah bankruptcy attorney, such as one of the many qualified attorneys at the Morrison Law Group who can explain the process and timeline of both Chapter 7 and Chapter 13 bankruptcy cases. Call 801.456.9933 today to schedule a FREE consultation. We have locations in Ogden, Logan, Sandy, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.