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Chapter 13

Chapter 13 is designed for individuals with regular income who desire to pay their debts but are currently unable to do so. Under this chapter, debtors are permitted to repay creditors, in full or in part, in installments over a period varying from 3 to 5 years, during which time creditors are prohibited from starting or continuing debt collecting actions. There are limitations for filing bankruptcy under chapter 13. The debtor must be self-employed or operating an unincorporated business, and his unsecured debts and must not exceed $290,525 and $871,550 correspondingly. Also, debtor cannot file under chapter 13 or any other chapters, if, within 6 preceding months, he filed a bankruptcy petition, which was dismissed for one reason or another. 

A chapter 7 case starts with filing a petition with bankruptcy court serving the area where the debtor resides. A pack of schedules and statements covering debtor's financial affairs and property is filed along with the petition. The debtor is also required to pay fees (total of about $200) to proceed the case, and failure to pay these fees results in dismissal of the bankruptcy case. Afterwards, an impartial trustee is assigned to manage the case. The trustee collects debtor's payments and distributes then among creditors.

Filing of the petition under chapter 7 “automatically stays” any creditors actions directed to collecting debts from the debtor, including lawsuits, wage garnishments, or even telephone calls demanding payments. Besides, automatic stay under chapter 13 prevents foreclosure of the mortgage and gives the debtor a possibility to cover the mortgage by making payments current over a reasonable period of time. 

Along with the petition or within 2 week thereafter, the debtor must file a repayment plan. The plan must guarantee a full payment for all claims or, if the plan classifies claims, equal coverage of each claim within each class. The plan is approved by the court and provides for regular payment of fixed amount to the trustee, who distributes the funds to creditors according to the terms of the plan.

A meeting of creditors is held in every case, during which the debtor is examined under oath. It is usually held 20 to 50 days after the petition is filed. The debtor must attend the meeting, at which creditors may appear and ask questions regarding the debtor's financial affairs and the proposed terms of the plan. After the meeting of creditors is finished, a confirmation hearing is conducted to decide whether the plan is feasible and meets the standards required by the Bankruptcy Code. However, under certain circumstances, the repayment plan may be modified by any party in interest either before of after confirmation. 

Once the court confirms the plan, it becomes debtor's responsibility to make the plan succeed. The debtor must make regular payments to the trustee, with adjustment to living on a fixed budget for a prolonged period. Alternatively, the debtor's employer can withhold the amount of the payment from the debtor's paycheck and transfer it to the chapter 13 trustee. 

The bankruptcy law regarding the scope of the chapter 13 discharge is complex, therefore, debtors should consult competent legal advise before filing. The chapter 13 debtor receives a discharge after all payments under the chapter 13 plan are successfully complete. The discharge releases the debtor from all debts, with limited exception, provided in repayment plan, and the creditors listed in the plan cannot undertake any action intended to collect discharged debts. 

Although chapter 13 provides a broader discharge than chapter 7, the debtor remains responsible for some kind of debts until they are paid in full. These debts include:

• certain long term obligations (such as a home mortgage),
• debts for alimony or child support,
• debts for most government funded or guaranteed educational loans,
• debts arising from death or personal injury caused by driving while intoxicated,
• debts for restitution or a criminal fine
• and some other.