| Chapter 13
is available only to individuals and married couples, not to
partnerships, limited liability companies, or corporations. Chapter 13
is similar to Chapter 7 insofar as the automatic stay is concerned, with
one notable exception: in Chapter 13, co-signers are protected from
creditors also, even though they did not file bankruptcy. Therefore, if a
parent co-signed a vehicle loan, and the child files Chapter 13, then
the creditor may not collect from the parent or the child, at least
until it obtains permission to do so from the court.
Another
important difference in Chapter 13 is that, unlike Chapter 7, the debtor
is at no risk whatsoever of having the Chapter 7 trustee take any
property from him/her/it for the benefit of creditors. The debtor is
Chapter 13 is permitted to retain ownership and possession of all
property. However, in Chapter 13 all creditors must still receive from
the debtor the same amount of money that they would have received in
Chapter 7, it’s just the way this happens differs substantially. In
Chapter 7, the trustee takes property, sells it or otherwise reduces it
to cash, and makes a distribution of the cash to creditors. In Chapter
13, the debtor is permitted to pay the money to the creditors over time
in monthly installments over as much as five years.
The debtor
in Chapter 13 proposes a Chapter 13 repayment plan to the court and
creditors and, if approved, pays money into the plan over time, usually 3
to 5 years. The Chapter 13 trustee disburses this money to creditors
every month until the plan is completed, but the debtor is protected by
the stay throughout the entire case, so that creditors are barred from
trying to collect the debt by themselves.
In 2005,
Congress passed bankruptcy reform legislation that was intended to force
more consumers (not businesses) into filing Chapter 13, rather than
Chapter 7. Under the new law, the debtor’s income is compared with the
median income in the state in which the debtor resides. If the debtor
is below median, he or she may file Chapter 7. If his or her income is
above median, then the debtor must go through a financial analysis to
determine if he or she can afford to pay a substantial amount of money
to creditors through Chapter 13. If the debtor can afford to pay between
$6,000.00 and $10,000.00 (depending on the amount of debt the debtor
has) or more to creditors over five years, then the debtor is required
to file Chapter 13 rather than Chapter 7. The intent of Congress was to
flush out the large number of debtors that Congress felt were abusing
the bankruptcy system by filing Chapter 7 when they could afford to file
Chapter 13. In practice, the legislation has confirmed that the large
number of abusers never existed and has had little effect on the
availability of Chapter 7 relief.
|