Chapter 13 Bankruptcy Rules

Here are some of the things you need to know when it comes to abiding the Chapter 13 Bankruptcy Rules ...

If you are considering filing for bankruptcy, there may be some confusion in your mind regarding the difference between filing under Chapter 7 and Chapter 13. Actually there is a very simple way to distinguish between the two. Under Chapter 7 you will be looking for the courts to literally ‘write off’ all or most of your outstanding debts and you stand to lose any property that isn’t considered exempt like your primary residence or your first vehicle which is necessary to get back and forth to work. Chapter 7 is a last ditch effort when you have literally no means to pay your debts. The courts will appoint a Trustee to sell any equitable property you have to pay whatever can be paid and the rest will be discharged. That means, written off.

Chapter 13, on the other hand is often referred to as the “wage earner’s plan.” You want to, more or less, freeze your non-secured debts where they are so that interest doesn’t keep compounding in order to establish a payment plan with the courts. Although you can’t make the payments as they stand now, you have every intention of paying your bills if the court can help you keep them manageable. This is where Chapter 13 Bankruptcy Rules come into play.

The very first thing you will be required to do is seek credit counseling. This must be done within 180 previous to filing for Chapter 13. The law reads as follows:

In addition, no individual may be a debtor under chapter 13 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. 11 U.S.C. §§ 109, 111.

However, if there are no counseling options available to you where you live, certain exemptions and/or extensions are written into the rules so that you can stay in compliance.

When you file for Chapter 13 there are certain forms that need to be filed with the petition. The Chapter 13 Bankruptcy Rules state that you must compile the following information:

1. A list of all creditors with the amounts and nature of their claims;
2. The source, amount, and frequency of the debtor's income;
3. A list of all of the debtor's property; and
4. A detailed list of the debtor's monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

It is important that your documentation be as complete as possible because, if granted, Chapter 13 would mean that you will make one monthly payment to the Court appointed Trustee and he/she in turn would distribute payments to your creditors. In some cases debts would be negotiated down which could be a considerable savings to you. The payment plan is usually three to five years in duration and you must, by law, follow the plan.

Actually, it is in your best interest to follow the plan because Chapter 13 rules set it up so that there is:

• an automatic stay to current
• potential stop to foreclosure
• potential stop to repossession (i.e. vehicles)
• potential stop to lawsuits
• creditor harassment ordered to cease once they have agreed to the terms

Remember, you must keep to your scheduled payments or the stays issued by your Chapter 13 ruling will be null and void and all bills will be due and payable in full immediately. Bankruptcy rules protect you only in so far as you abide by the ruling of the Court.