Chapter 13 Bankruptcy
Houston Texas
Chapter 13 is designed to
give debtors, with the ability to pay their creditors, the
opportunity to do so without losing their assets in a chapter 7.
A chapter 13 debtor must have regular income such as wages,
social security, welfare, disability payments, or pension
income. Debt limits may be an issue.
Some reasons to file a chapter 13 are to:
deal with an arrearage on a homestead or a car loan;
retain non-exempt assets;
pay non-dischargeable debts such as taxes or student loans;
benefit from the super discharge of chapter 13.
If a debtor is behind on a house or car payments, the chapter 13
filing stops foreclosure or repossession of the property, and
allows the debtor to catch up on the missed payments over a
three- to five-year period.
A chapter 13 debtor can selectively retain certain property and
repay the debt in installments, or chose to surrender property
without paying for the same. Also, if the debtor has any
contracts or leases, the debtor can choose to reject a
contract\lease, pay nothing and surrender the property, or
assume a contract\lease, continue to make payments and retain
the collateral.
A powerful feature is the Chapter 13 cram down. Except for the
homestead mortgage, a debtor can propose to pay a lower total
amount than originally agreed to on secured debts, to
drastically lower the interest rate, to lower the amount of
payments, to pay the claim over a longer period of time, to
defer payments until after other debts are paid, to eliminate
various oppressive terms, or even to eliminate the creditor's
lien. Fair market value may be an issue, but once resolved, the
lien holder must transfer the title free and clear title when
all payments have been completed.
The chapter 13 bankruptcy rules concerning the discharge of
debts are more liberal than in a Chapter 7 case. Certain debts
can be discharged in a Chapter 13 case that would be
non-dischargeable in Chapter 7. By completing a confirmed plan,
all debts provided for in the plan are discharged, and the
debtor earns a discharge. Referred to as the chapter 13 "super
discharge," it may allow for the discharge of: (1) debts due to
fraud; (2) debts for fraud on the part of fiduciaries; (3) debts
for willful and malicious injuries; (4) civil fines and
penalties; (5) debts for certain marital property settlement
debts; and (6) certain tax debts.
If a debtor is doing business as a sole proprietor, a chapter 13
filing can be used to reorganize the business. All the above
benefits available to a consumer debtor are also available to
reorganize the debtor's small business.
Chapter 13 generally allows debtors to keep their property by
repaying creditors out of their future income. Each chapter 13
debtor submits a plan which must be approved by the Bankruptcy
Court. The debtor must pay the chapter 13 trustee the amounts
set forth in the plan. The chapter 13 trustee disburses the
debtor's payment proportionately to the creditors. Debtors
receive a discharge after they complete their chapter 13
repayment plan.
