A Chapter 13 proceeding, often called a wage-earner plan, is initiated by filing a petition. As in Chapter 7 cases, the filing of the petition automatically stays (stops) creditors from trying to collect on most of their debts. 11 USC §362. There is also a special automatic stay provision in Chapter 13 that protects co-debtors. A creditor generally may not seek to collect “consumer debts” from any individual who is liable along with the debtor. 11 USC §1301(a).
Along with the petition, the debtor must also file a schedule of assets and liabilities, a schedule of current income and expenditures, a schedule of executory contracts and unexpired leases and a statement of financial affairs. The debtor must also file a certificate of credit counseling; evidence of any payments made by an employer received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest in federal or state qualified education or tuition accounts. 11 USC §521. After filing the petition, a trustee is appointed to manage the case. 11 USC §1302. Within 20 to 50 days after the debtor files the petition, the trustee holds a meeting of creditors. The debtor must attend this meeting and answer questions regarding financial issues and the proposed plan terms. 11 USC §343. The judge must hold a confirmation hearing within 45 days of the meeting of creditors, at which time he or she will decide whether the plan is feasible and meets the Bankruptcy Code’s standards for confirmation. 11 USC §1324, 1325. Creditors may ask questions about and object to the plan. If the court approves the plan, however, the creditors can take no action outside the plan’s scope to collect their debts.
Within fourteen days after the debtor’s filing of the petition, the debtor must file a plan that sets forth the details of how he or she intends to pay off creditors in the next three years(or, with the court’s permission, five years). Fed.R.Bankr.P. 3015. The plan must provide for fixed payments to the trustee on a regular basis and it will be submitted to the court for approval. If approved, the trustee will distribute funds to the creditors according to the plan’s terms. Within 30 days of filing, the debtor must start making payments under the plan to the trustee, even if the court has not yet approved the plan. 11 USC §1326(a)(1).
There are three types of claims:
- Priority claims. Priority claims include most taxes and the costs of the bankruptcy proceedings.
- Secured claims. Secured claims are those for which the creditor has the right of recovering property (collateral) if the debtor does not pay.
- Unsecured claims. Unsecured claims are claims for which the creditor generally has no special rights to collect against any property the debtor owns.
The plan must pay priority claims in full, unless a priority creditor agrees otherwise. Unsecured claims do not need to be paid in full as long as the plan provides that the debtor will pay all “disposable income” over an “applicable commitment period” and as long as unsecured creditors would receive at least as much under the plan as they would if the debtor’s assets were being liquidated under Chapter 7. 11 USC §1325.
Once the debtor completes all payments under the plan, the debtor is entitled to a discharge, which releases him or her from all debts provided for or disallowed under the plan. To obtain the discharge, the debtor must also (1) certify that all domestic support obligations have been satisfied (if applicable); (2) complete an approved financial management course; and (3) have not received a discharge within two years in a prior Chapter 13 case or within four years in a prior case under Chapters 7, 11 or 12. 11 USC §1328.
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