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Chapter 13 Bankruptcy Overview

Chapter 13 Bankruptcy
Chapter 13 involves a debt payment plan which lasts three to five years depending on the amount of your debt and your household income. If you are in a chapter 13, you will make payments to a Chapter 13 trustee each month. The trustee will then disburse the funds to your creditors according to the terms of the repayment plan approved by the bankruptcy court. You are under bankruptcy protection throughout the chapter 13 plan. With the exception of mortgage loans, most secured debt is paid through the chapter 13 plan. After the chapter 13 is filed, you will resume or continue making mortgage payments directly to the creditor. If you were behind on your mortgage payments when the bankruptcy was filed, the mortgage arrearage will be paid through the chapter 13 plan. Your unsecured debt (such as medical bills or credit cards) is also paid through the plan. Most chapter 13 plans do not pay back 100% of the unsecured claims. However, you will receive a discharge from any unpaid portion of those unsecured debts upon completion of your chapter 13 plan.

When is Chapter 13 preferable over a Chapter 7?

If you are behind on mortgage payments or vehicle payments, the filing of a chapter 13 bankruptcy will stop a pending foreclosure or repossession. You can then cure the arrearage on the mortgage and pay your vehicle loans over time in the chapter 13 repayment plan. These options are not available in a Chapter 7.

Tax debt which would not be dischargeable in a Chapter 7 bankruptcy can be paid over time in your chapter 13 plan. The tax debt is determined as of the date of the bankruptcy filing and does not continue to accrue interest or penalties. Tax liens can also be addressed through a chapter 13 plan. 

If you do not qualify for a Chapter 7 due to your income, you may still be eligible to file a Chapter 13.

If you have property that would be at risk of being sold by a Chapter 7 trustee, you can protect and keep that property in a Chapter 13 bankruptcy. You are not required to liquidate your property in a Chapter 13 case.

If you do not qualify for a Chapter 7 due to a prior bankruptcy filing, you may still qualify for a Chapter 13.

If you are behind on child support or alimony payments, Chapter 13 allows you to pay the arrearage through the chapter 13 plan and resume making regular ongoing support payments after the bankruptcy is filed.

Obligations which are determined to be in the nature of a property settlement pursuant to a family court order are dischargeable in a Chapter 13 whereas they are not dischargeable in a Chapter 7 bankruptcy. 

Chapter 13 also provides a co-debtor stay which may prohibit creditors from pursuing collection against someone who is a co-signer on a consumer debt. 

Do I qualify for Chapter 13?

Chapter 13 is only available to individuals and sole proprietors. Corporations and partnerships are not eligible for Chapter 13.

You must have a regular source of income to be eligible to file a chapter 13. The source of income does not have to be from employment. Social security, worker's compensation, disability, and unemployment benefits qualify as a regular source of income. If a husband and wife file a joint bankruptcy case, it is sufficient if only one spouse has income.

Your total debt must be within the Chapter 13 debt limits. Secured debts must total less than $1,081,400 and unsecured debts must total less than $360,475. If you had a prior bankruptcy case dismissed within the last 12 months, you may be ineligible to refile a Chapter 13 depending upon the reason for the dismissal of the case.

Are married couples required to file a joint case?

No. If most of the debt is in one spouse’s name, it may be possible to resolve the household financial problems by having only one spouse file for bankruptcy. This allows the non-filing spouse to avoid having bankruptcy on his or her credit report and also keeps the non-filing spouse from being under the jurisdiction of the bankruptcy court.

Will I have to go to court?

You must attend one court hearing which is called the Meeting of Creditors or “341 hearing” - named after the Bankruptcy code section which requires the hearing. The hearing is held at the Donald Stuart Russell Federal Building, 201 Magnolia Street, Spartanburg, South Carolina. A bankruptcy trustee will conduct the hearing instead of a judge. Your creditors receive notice of the hearing and are welcome to attend the hearing. However, most of time the creditors do not make an appearance. Your attorney will attend the court hearing with you.

How will filing Chapter 13 affect my credit report?

A Chapter 13 bankruptcy can remain on your credit report for up to 10 years. That does not mean that you cannot get credit after the bankruptcy discharge is issued, but you will probably pay higher interest rates on your credit cards or loans until you are able to re-establish your credit. If you are contemplating bankruptcy, there is a strong possibility that your credit report is already showing negative items such as late payments or no payments, collection accounts, or foreclosure/repossession.

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Sharon K. Butler, Attorney at Law
1199 John B White Sr Blvd
Spartanburg , SC 29306
Phone: 864-597-0316
United States Bankruptcy Court -
District of South Carolina
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