A Ch. 13 bankruptcy proceeding allows debtors, under the supervision and approval of the courts, to restructure their debts into an affordable payment plan. Debtors must submit a repayment plan at the outset of the case and make continual payments over the course of three to five years. Medical bills, credit card debt, and personal loans are some of the most common debts discharged in a Ch. 13 case.

The Bankruptcy Code titles Ch. 13 an “Adjustment of Debts of an Individual with Regular Income.” Though, it is more commonly referred to as the wage earner’s plan. For a debtor to be eligible under Ch. 13 several qualifications must be met. First, Ch. 13 is only available to individuals. It is also possible for business owners to file under Ch. 13 but only as a sole proprietor on the debts which they are personally liable. Second, the debtor’s unsecured debts must be less than $394,725 and secured debts less than $1,184,200. Third, the debtor has the responsibility to show that in the preceding 180 days, a prior bankruptcy petition was not dismissed due to failure to appear before the court or failure to comply with bankruptcy court orders. Fourth, a debtor must submit proof of filed federal and state income tax returns for the four years prior to the bankruptcy filing date. Fifth, a debtor must have received credit counseling from an approved credit counseling agency within 180 days before filing.

The Ch. 13 repayment process is very similar to the Ch. 11 process. A typical Ch. 13 proceeding has five stages: (1) gather financial information; (2) meet with an attorney; (3) file petition with schedules and plan; (4) confirmation hearing; and (5) continuation of the plan. To streamline the process, the first step a debtor should take is compiling all their financial information, such as income records, tax returns, bank records, lists of bills, and lists of assets. This information helps guide the initial discussion with an attorney regarding the decision between filing a Ch. 7 and Ch. 13. Next, the debtor and attorney will use the financial information provided by the debtor to answer the questions contained in the petition. Upon filing the petition, the debtor must also file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a schedule of executory contracts and unexpired leases; and (4) a statement of financial affairs. The debtor must also pay a $313 petition filing fee. With the court’s permission, however, the fee may be paid in four or less installments over the course of 120 days after filing.

The repayment plan must be filed with the petition or within 14 days of filing the petition. A plan must be submitted for court approval and must provide for payments of fixed amounts to the Ch. 13 trustee on a regular basis, which will then be distributed to creditors in accordance with the terms of the plan. The plan must separate creditors into classes of debt, which determine the percentage of repayment. Priority debts and secured debts must be repaid in full unless a particular creditor agrees to a different treatment of the claim. The plan may require the debtor to repay all or nothing of unsecured debts, but the amount will depend on individual circumstances.  Within 30 days after filing, even if the plan has not yet been approved by the court, the debtor must start making payments to the trustee.

Between 21 and 50 days after filing the petition, the Ch. 13 trustee will hold the 341 meeting of creditors. The debtor must attend the meeting and answer questions, under oath, regarding his or her financial affairs and the proposed terms of the plan.

The confirmation hearing occurs no later than 45 days after the 341 meeting of creditors. This is when the bankruptcy judge decides whether the plan is feasible and meets the confirmation standards set forth in the Bankruptcy Code. If the court confirms the plan, the trustee will begin distributing the funds received under the plan. If the court denies the plan, the debtor may file a modified plan. Once the plan is confirmed, the debtor must continue to make regular payments to the trustee. The debtor may retain property, in accordance with the plan, if payments are continually made. Further, the debtor may not incur new debt without consulting the trustee.

Once all payments under the plan have been satisfied, the debtor is entitled to a discharge. This releases the debtor from all debts provided for by the plan with the exception of certain debts, such as home mortgage, debts for alimony and child support, and certain taxes. The discharge prohibits creditors from continuing or initiating any action against the debtor to collect the discharged obligations.

Filing for bankruptcy is now one of the more complex and confusing areas of the legal field making it vitally important to have an attorney. Although there is an abundance of information regarding filing for bankruptcy available online, hiring an attorney will save you from further stress. We understand that each individual situation is unique and we take the time necessary to become familiar with you and your financial situation. If you need help with personal or business bankruptcy, we are here to help. Please contact us online or anytime at 931-444-6920 to set up a consultation for us to analyze your debt and decide which path is right for you. Contact RedStone today.

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