A Chapter 13 bankruptcy is a reorganization of a debtor’s debt with the debtor under the protection of the bankruptcy court. A Chapter 13 bankruptcy plan lasts between 36-60 months, and, upon successful completion of the plan, the remaining dischargeable debt is discharged. Filing for Chapter 13 bankruptcy is not for everyone. In fact, a Chapter 13 is worse for your credit than a Chapter 7 because you are in a bankruptcy for longer period; however, there are many reasons why you may have to file a Chapter 13. The main reasons to file a Chapter 13 are:
- Amount of disposable income
- To save a home from foreclosure
- The need to protect a non-exempt asset
- Previous Chapter 7 within eight years
- IRS & State tax liability
- Threat of automobile repossession
- Student loans
- Back child support
A Chapter 13 bankruptcy gives a debtor in Minneapolis – St. Paul MN the opportunity to reorganize their debts, pay the debts that are non-dischargeable, and protect assets all with protection from the Bankruptcy Court. For a Chapter 13 bankruptcy to be feasible, a debtor must have a stable and regular income, must have disposable income and the debts must not be too high.
The procedures in a Chapter 13 are the same as in a Chapter 7. The debtor meets with one of our Minnesota bankruptcy attorneys, we file the case, the automatic stay takes effect and the debtor attends the Meeting of the Creditors. However, in a Chapter 13 bankruptcy the debtor begins to make payments according to the Chapter 13 plan 30 days after the filing of the case. The payments continue until the completion of the plan. A Chapter 13 discharge comes after all the proposed payments have been made – usually between 36-60 months.
The law requires a debtor to take two financial classes. The first class, called Credit Counseling, is required before a Chapter 13 bankruptcy petition can be filed. The class is designed to help debtors evaluate their financial situation. The second class, called Debtor Education, is required in order to receive a discharge. The class is designed to help debtors post-bankruptcy with their personal financial future.
Chapter 13 can be difficult, hence the need for a skilled and knowledgeable bankruptcy attorney in Minnesota. The limitations in Chapter 13 cases, which include tight budgeting restrictions, create a situation where the debtors are one small step from being dismissed from the Chapter 13. Furthermore, debts that are not included in the Chapter 13 or are post-petition (arise after the bankruptcy is filed) need to be kept current. However, we, as bankruptcy lawyers in Minnesota do not recommend Chapter 13 unless it is absolutely necessary for the debtor. We work with the debtor to put together a budget that gives the debtor the best chance for completion. Finally, during the entirety of the plan, our Minneapolis – St. Paul Minnesota office is available to assist if complications arise.
After it is filed, a Chapter 13 can, in some instances, be modified to reflect a debtor’s current income. In fact, a debtor may be able to convert to a Chapter 7 if his or her situation changes so that a Chapter 7 is best for the debtor.
If a debtor completes the plan, the Bankruptcy Court will issue a discharge. The debtor can begin to rebuild his or her credit after their discharge and begin to live without being under the yoke of the bankruptcy court.
The complexities of bankruptcy law can and do change frequently, your bankruptcy lawyer will be fully versed on the Chapter 13 bankruptcy laws and how best to apply them in your situation.