When filing for bankruptcy in Arkansas, Oklahoma, or elsewhere, individuals typically have a choice between filing under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code. We recently wrote about the three essential details you need to know about Chapter 7 bankruptcy, and today we’re following that up with a similar post about Chapter 13.
In particular, we are going to briefly answer three questions about Chapter 13 bankruptcy:
- How does it help debtors?
- What are the requirements for the repayment plan?
- What happens when the plan ends?
Of course, the bankruptcy laws in the United States are complicated, and can’t be fully explored in a blog post. So, if you are considering filing for Chapter 13 bankruptcy in Arkansas or Oklahoma, please contact a Chapter 13 bankruptcy lawyer from Nolan Caddell Reynolds for more information and help getting everything right.
1. How Does Chapter 13 Bankruptcy Help Debtors?
Chapter 13 bankruptcy allows a debtor to establish a court-approved plan to repay his or her debts—or at least, as much as possible. After that plan concludes, the court will discharge the debtor from further liability on most types of remaining unsecured debts. Some other ways Chapter 13 helps debtors include:
- The automatic stay. When a debtor files for Chapter 13 bankruptcy, collection activities by his or her creditors must stop. This “automatic stay” prohibits such things as disconnecting utilities, evicting a tenant, foreclosing on a mortgage, filing or continuing a lawsuit, and even demanding repayment by telephone or mail.
- Benefits for homeowners. Filing for Chapter 13 bankruptcy offers special advantages to homeowners facing foreclosure. The automatic stay prevents a lender from initiating foreclosure proceedings against the home. Additionally, the debtor is permitted to pay past-due installments on the mortgage over a reasonable period after filing.
- The repayment plan is binding. After a repayment plan is approved by the court, it is legally binding on both the debtor and his or her creditors. This means that creditors cannot seek to collect on the debtor’s debts outside of the Chapter 13 proceeding.
2. What Are the Requirements for the Repayment Plan?
The repayment plan is the foundation of a successful Chapter 13 bankruptcy. In designing a repayment plan, which must be approved by the bankruptcy court, the U.S. Bankruptcy Code requires debtors to include certain provisions. Some of those requirements are described below.
Timing. The repayment plan must be filed simultaneously with the petition or within 14 days thereafter.
Duration. How long a repayment plan lasts depends on the debtor’s average monthly income over the six months before filing for bankruptcy. If his or her income is less than the median income in the state where he or she lives, then the plan will typically be for three years. Otherwise, it will be for five years.
Extent of repayment. How much of a debt the plan must provide for depends on the type of debt at issue. For this purpose, debts are divided into three types of claims:
- A priority claim must be paid in full under the repayment plan. Priority claims include such things as taxes, child support payments, and the costs of the bankruptcy case.
- A secured claim refers to a debt that is secured by an asset, known as the collateral. Car loans are secured debts, for example, because the lender has the right to repossess the car if the debtor does not repay the loan. Depending on the type of loan at issue, the debtor must either pay the current value of the collateral or make a full repayment of the loan.
- An unsecured claim is a debt that is not secured by collateral. Credit-card debt is one common example of unsecured debts. Unsecured claims do not need to be repaid in full under the plan, but the creditor must receive at least as much as it would have if the debtor had filed a Chapter 7 bankruptcy.
3. What Happens When the Plan Ends?
As discussed above, the repayment plan in a Chapter 13 bankruptcy will normally last for three or five years. After the end of that period, if the debtor has made all payments required under the plan, then the court will discharge him or her from further liability on most types of unsecured debts.
The discharge doesn’t extend to all debts, however. Some major debts that are not discharged in a Chapter 13 bankruptcy include:
- Child support and alimony
- Student loans
- Debts the debtor failed to list when filing
- Certain damages for personal injury or death caused by the debtor
Additionally, even as to debts that can normally be discharged in a Chapter 13 bankruptcy, a discharge is not available in all circumstances, such as when:
- The debtor failed to complete a financial-management course.
- The debtor received a discharge in a Chapter 7, 11, or 12 bankruptcy within the previous four years.
- The debtor received a discharge in another Chapter 13 bankruptcy within the previous two years.
Contact Nolan Caddell Reynolds for Help Filing for Bankruptcy in Arkansas or Oklahoma
Understanding the three details above is important for those considering filing bankruptcy in Arkansas. But even more important is hiring a Chapter 13 bankruptcy lawyer to guide you through the process. The Bankruptcy Code is a complex federal law, and like many federal laws, every rule is subject to exceptions, and even many of the exceptions have their own exceptions.
In short, it’s easy to get things wrong if you try to go it alone. Fortunately, you don’t have to.
The Chapter 13 bankruptcy lawyers of Nolan Caddell Reynolds are experienced in helping debtors just like you when filing for bankruptcy in Arkansas or Oklahoma. Our bankruptcy attorneys will help you understand what Chapter 13 bankruptcy involves; prepare, organize, and file the necessary documents to begin a case; and work by your side every step of the way.
If you’re interested in learning more about filing for Chapter 13 bankruptcy in Arkansas, Oklahoma, or elsewhere, contact us today for a free case evaluation.