Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows debtors who have enough disposable income to reorganize and repay certain debts on a monthly basis. It has a number of advantages and benefits over Chapter 7. Unlike Chapter 7, it takes three to five years to achieve bankruptcy discharge in Chapter 13 proceedings. During that time you will have to repay your unsecured creditors a percentage of what you owe them (percentage plan) or a specific amount or “pot” of money for the trustee to divide among the unsecured creditors (pot plan). An unsecured creditor is a creditor who does not have a lien on your property, such as a medical bill or credit card. One advantage of filing for Chapter 13 is being able to keep your home from being sold in foreclosure or your car from being repossessed. A knowledgeable Montgomery bankruptcy lawyer can help you figure out whether filing for Chapter 13 bankruptcy makes sense for you and your family.How Does Chapter 13 Bankruptcy Work?
Chapter 13 proceedings are initiated by filing a petition with the bankruptcy court. Your attorney will also file a statement of financial affairs, a schedule of assets and liability, a statement of current income and expenditures, a schedule of contracts for which performance is still pending, and other documents relevant to your financial condition. Alabama does not follow the U.S. Trustee system, so a bankruptcy administrator appoints the Chapter 13 trustee who will evaluate and administer your case. The trustee performs the functions of collecting payments from you and making distributions to creditors.
You must also file a debt repayment plan that identifies three types of claims: priority, secured and unsecured. Priority claims, as their name suggests, are debts that must be repaid. This includes taxes, alimony and bankruptcy filing fees. Secured claims, on the other hand, are claims secured by property that can be taken back by the creditor. An example of this is a house secured by a mortgage. If you want to keep real estate, the plan can provide for you to catch-up on delinquent payments and protect you from foreclosure while resuming your normal monthly payment outside of the plan. If you want to keep personal property, such as an automobile, the plan has flexible options including paying in a normal manner outside of the plan; catching-up on delinquent payments; or paying for the vehicle entirely through the plan. If paying for personal property through the plan, the creditor only receives an interest rate of 1-2 % above the prime rate instead of the contract rate of interest. In some instances, your plan may only pay what the personal property is worth rather than the amount owed (known as a “cram down”). Unsecured claims are claims like medical debt and credit card debt. The creditor does not have a security interest in collateral to secure the debt.
Your debt repayment plan doesn't necessarily require you to pay unsecured claims in full. However, the court does expect that unsecured creditors will receive as much repayment as they would have if your non-exempt assets had been liquidated in Chapter 7 bankruptcy. The plan must also pledge all of your “disposable income” so that, if you can afford to pay your debts in full, you must do so.
A bankruptcy judge must first approve the Chapter 13 debt repayment plan that your attorney proposes. Chapter 13 does not eliminate all unsecured debts, at least not right away. This type of bankruptcy requires debtors to make a monthly payment to the bankruptcy court based on what they can afford. The single payment is distributed to creditors as part of the debtors' repayment plans and makes it easier to pay off unsecured debts, completely or at a reduced rate. Currently, in order to file Chapter 13, a debtor's unsecured debts must be less than $360,475 and secured debts must be less than $1,081,400, but these numbers change regularly.Effect of Chapter 13 Bankruptcy
Creditors cannot continue to harass you or collect from you if you file a Chapter 13 bankruptcy petition. An automatic stay goes into effect, whereby creditors cannot garnish your wages or pursue a lawsuit against you. An individual who is jointly liable with you for a consumer debt that you incurred for personal, family or household reasons may also be able to protected by a “co-debtor” stay of that debt.
Within 31-45 days of filing the petition, a creditor meeting will be held. Ironically, creditors rarely attend but it does provide creditors an opportunity to ask questions. You will be placed under oath and asked questions by the trustee and any creditors that attend. The trustee will also review your debt repayment plan. About four months after the case is filed, your creditors must file a “proof of claim” with the bankruptcy court if they want to receive any part of the distribution from your monthly payments. Once all payments are made, the bankruptcy court will discharge your debts.Hire an Experienced Chapter 13 Bankruptcy Attorney
Chapter 13 bankruptcy can be complicated, particularly when it comes to creating a debt repayment plan that meets both your needs and the court's. An Alabama attorney with knowledge of how to claim exemptions for the property you find valuable can help you create this plan and make sure your paperwork is complete. Contact an experienced Alabama bankruptcy attorney at Grainger Legal Services. We serve clients from our offices located in Montgomery, Prattville, and Troy, as well as throughout the state of Alabama. Call us at (334) 260-0500 or contact us online to schedule a consultation.