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What happens in a Chapter 13 bankruptcy?

A previous post here reviewed Chapter 7 bankruptcy, which usually results in the discharge of most of a debtor's financial obligations, but does not necessarily protect a person's home from foreclosure. Also, many residents of Rockland County earn too much money to qualify for Chapter 7 relief. Chapter 13 of the Bankruptcy Code is the procedure that is most frequently used by persons who cannot pass the means test for Chapter 7 bankruptcy.

Any individual can file for relief under Chapter 13 as long as their unsecured debts are less than $394,725 and secured debts are less than $1,184,200. These limits are occasionally adjusted to reflect changes in the consumer price index. Along with the petition, the debtor must file schedules of assets, liabilities, current income and expenses and executory contracts and unexpired leases. A Chapter 13 debtor must also file a statement of financial affairs. The debtor must also file the most recent tax return and any tax returns filed while the case is pending. Married individuals must provide this information for their spouses, even if the spouse is not joining in the filing. As with Chapter 7, the filing of a petition under Chapter 13 automatically invokes a stay of proceedings that halts all collection actions and prevents creditors from attempting to collect the amounts owed to them.

A Chapter 13 filing may save the debtor's home from foreclosure. The debtor will have the opportunity to bring any loan payments current and negotiate with the mortgage company about the amount and frequency of future payments. Chapter 13 requires the debtor to file a repayment plan with the petition or within 14 days after it is filed. The repayment plan lists all of the bankrupt's debts and specifies a schedule for repaying them. The plan must demonstrate the debtor's intent to pay all projected "disposable income" over a period that is satisfactory to the debtor and to the creditors. The plan will be reviewed by the court and, if it is satisfactory, the court will issue an order confirming the plan. If the plan is not confirmed by the court, the debtor must file an amended plan that addresses the court's concerns. A discharge of debts will be issued at the close of the repayment period if the debtor has made all required payments.

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