Chapter 13
Chapter 13 is sometimes called a re-organization, because you come up with a plan that outlines how you will repay your debt over a three to five year period. You are "re-organizing" your finances. You can keep your house or car if your repayment plan is accepted, but you will have to most likely pay the mortgages etc. just as if you hadn't filed bankruptcy. If you have a non-exempt property you want to keep, such as your house or boat, this option might appeal to you. And with the new law in effect, you may be prevented from filing Chapter 7 because of the amount of your annual income.
In Chapter 13 you file a petition detailing your assets and your liabilities, and soon thereafter, a plan to repay the debt. Your creditors and the Chapter 13 appointed bankruptcy trustee look at your plan and file any kind of objections. Once the plan is OK'd both you and your creditors are required to follow it.
There are percentages established to determine how much you will need to repay on your unsecured debts, but it must be at least equal to what creditors would have gotten if all your non-exempt assets were sold in a Chapter 7 proceeding. Once the repayment plan is fulfilled, any unsecured debt that you have not paid is discharged.
With the new law, these strictures may be too burdensome, with the debt repayment plan impossible to live with. It has tightened up the amount of home equity that is protected, exempting only up to $125,000 if the home was bought less than 40 months before filing. Under the new law, bankruptcy court will look at your living standards through the eyes of the IRS, determining what you can be expected to pay for living expenses and how much you will have left to pay for your debt. These IRS standards are very stringent and if you contest them, you will have to ask for a hearing, a step involving more time and money.
Some experts say that with the new law, legal help with Chapter 13 filings will become very expensive because
the bankruptcy trustees will hold attorneys more culpable for any kind of filing discrepancies and
the filers are able to sue the attorney over these kinds of issues
Any hint of further litigation will drive up the initial price of legal representation. There is also the fear that with the new law, garnished wages and property foreclosures will be more prevalent, if the creditor hasn't gone through the bankruptcy hoops precisely.
The filing of Chapter 13 requires debt counseling in the six months before you file for bankruptcy. But it is an industry rife with problems. Before the discharging of the debt, you will have to attend money management classes (the cost coming out of your own wallet.) However, there are no real industry standards approved by bankruptcy officials, such as curriculum or licensing agencies, leaving the creditor in a still more vulnerable position.
