In the bankruptcy system, there are two types of proceedings available to individual debtors: liquidations and reorganizations. Chapter 7 is a liquidation proceeding in which assets that cannot be claimed as exempt are sold and the proceeds paid to creditors. The debtor receives a discharge upon satisfying some or none of the debts (in a no-asset case), and is relieved of any further personal liability. In a Chapter 13 reorganization proceeding, on the other hand, the debtor keeps her assets while paying off her creditors according to a monthly “plan.”
Chapter 13 is designed for individuals with regular income who can afford to make monthly payments to their creditors. A debtor who qualifies for a Chapter 13 may repay her debts over a period of time not to exceed five years. Upon the successful completion of the plan, the debtor receives a discharge of any remaining debts and, most importantly, is able to retain her assets. This chapter is most commonly filed by debtors who are at risk of losing their homes to foreclosure or their cars to repossession. Through a Chapter 13, debtors are afforded an opportunity to cure defaults on their mortgages and car loans, without incurring much damage to their credit rating.
The trustee appointed in a reorganization filing is entrusted with the duty of collecting monthly payments and issuing dividends to creditors. In order for the plan to be approved, the court implements a formula that takes into account the debtor’s income to expenses ratio. The judge has to be satisfied that the debtor can afford to make the payments without an undue burden. A chapter 13 plan may also be modified after confirmation to accommodate for changing circumstances. The plan can be changed to allow a debtor to accelerate payments or lower monthly obligations. For example, if the debtor wins a large settlement in a lawsuit, the trustee will demand that the debtor make larger monthly payments or pay all her debts in full. If the debtor loses her job, and is unable to pay the agreed upon amount, she may ask the court that her payments be lowered so she can stay current with her plan. If the debtor is able to get a plan confirmed by engaging in fraud, the court will revoke the plan upon gaining knowledge of the fact. For example, if the debtor shows that she makes $3,000 in wages a month as a paralegal, but fails to disclose the money she makes tending to bar at night, her bankruptcy petition will be dismissed and she may face perjury charges.
Most importantly, a chapter 13 petition may be dismissed or converted to chapter 7 liquidation proceeding instead. This is the primary reason why a potential debtor should never attempt to file a chapter 13 proceeding pro-se (without a lawyer). If the Chapter 13 is converted to a Chapter 7, you will be forced to sell your property that you were so desperately trying to save. Hiring a bankruptcy lawyer for such a proceeding is very affordable, as the legal fee can be included in your monthly plan.
Mishiyeva Law- Bankruptcy Lawyer NYC 80 Wall Street New York, NY 10005 (646) 736-6328 kmbankruptcylawyerny.com