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What is Chapter
13?
Chapter 13 is a ‘reorganization’ bankruptcy. Unlike Chapter 7, the only ‘liquidation’ bankruptcy, the trustee does not take non-exempt property, sell it, and distribute money to creditors. Instead, you make regular (usually monthly) payments to the trustee and that money is then distributed to creditors according to the terms of a Chapter 13 plan which we write and the court confirms. The plan must run at least three years and may go up to five years. If the client has seasonal layoffs (loggers, for example) or other fairly predictable irregularities in income, the payments can be scheduled to track the income patterns. That is, the plan can be drafted to provide that you pay more during your working months and less when you are in seasonal layoffs. The amount of the monthly payment is generally that money which is left over after the basic cost of living (this month’s rent/mortgage, food, utilities, transportation, etc.) Is subtracted from net (take-home) pay. (This is not refigured on a month-by-month basis. It is projected for the next few years.) Obviously, to qualify for Chapter 13, one must have disposable income after paying the allowed cost of living. Within certain limitations, this allows you to put the money going to the creditors through the trustee where it does the client the most good. For example, you can use the plan’s funding to stop a mortgage foreclosure by curing the arrears, pay off vehicles, appliances, furniture, tires, and other secured claims against property necessary for ordinary living, then put what’s left on general unsecured claims. Anything still unpaid on the general unsecured claims at the end of the plan is then discharged (wiped out) as though you had taken a Chapter 7. The whole idea behind Chapter 13 is that after completion of the plan, you have a fresh start. Your vehicles and other personal property will be paid for and you will owe little or nothing beyond long-term debt such a mortgage. One of the advantages of Chapter 13 is the strong arm it provides the debtor in dealing with judgment creditors and such ‘problem’ creditors as the IRS and the State Tax Commission. Also, even though most taxes are non-dischargeable, the accumulated penalties are dischargeable. Generally, income taxes assessed over three years prior to the filing of the bankruptcy are dischargeable if tax returns were filed on time. (Taxation, like law itself, is a very technical subject so only an attorney familiar with the facts of your situation can advise you.) |
