Q: How does a Chapter 13 bankruptcy case work?
A: Chapter 13 of the federal Bankruptcy Code allows a consumer to repay some or all of his or her debts through a payment plan approved by the Bankruptcy Court. When the plan is in place, creditors generally are prohibited from collecting debts directly from the debtor. Instead of paying his or her creditors directly, the debtor pays a certain amount every month to the Chapter 13 trustee, and the trustee distributes the money to the creditors, as provided in the Chapter 13 plan. When the last payment is made, the debtor receives a discharge for the remainder of his or her dischargeable debts.
Q: How long does it take to complete a Chapter 13 plan?
A: A Chapter 13 plan lasts 36 to 60 months.
Q: Why would a debtor choose Chapter 13 over Chapter 7?
A: Chapter 13 is the preferred choice for a person who wishes to repay some or all of his or her unsecured debts, and whose income is sufficient to allow him or her to do so in a reasonable amount of time. In addition, if the debtor has a considerable amount of nonexempt property or a lot of valuable exempt property used as security for debts, this property could be lost in a Chapter 7 case, so Chapter 13 may be the preferred option. Some other types of debtors, whose debts might not be discharged under Chapter 7 and those with one or more large debts that may be discharged only under Chapter 13, might opt for Chapter 13 over Chapter 7.
Q: What debts are paid by a Chapter 13 plan?
A: The plan may pay any and all debts of the debtor, including secured and unsecured debts, and even debts that are non-dischargeable, such as student loans and spousal and child support.
Q: Who is the trustee?
A: The trustee in a Chapter 13 case is someone who is appointed by the Bankruptcy Court to receive the regular payments from the debtor, distribute those payments to the creditors according to the Chapter 13 plan and administer the bankruptcy case until it is closed. The debtor is always required to cooperate with the Chapter 13 trustee.
Q: May a self-employed person file under Chapter 13?
A: Yes. A self-employed person meeting the eligibility requirements may file under Chapter 13 and may continue to operate her or his business during the resolution of the bankruptcy case and the completion of the plan.
Q: May a debtor convert a Chapter 7 case to a Chapter 13 case?
A: In some cases, a Chapter 7 case may be converted to a Chapter 13 case at the request of the debtor at any time before the case is closed unless the case was converted previously from Chapter 13 to Chapter 7.
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