Chapter 13 bankruptcy

Chapter 13 bankruptcy is essential when you have a mortgage and you’re in foreclosure. This bankruptcy filing can stop foreclosure even up to one day prior to the foreclosure sale. You can stay in your home, stop the foreclosure, and arrange to make manageable monthly payments up to five years.

Here are the basic components of a Chapter 13 bankruptcy:

The Chapter 13 Trustee 

Automatic Stay 

Plan of Repayment 

Meeting of Creditors 

Making the Plan

Chapter 13 Discharge

The Chapter 13 Trustee

As the Chapter 13 bankruptcy petition is filed, a trustee is appointed. This trustee administers your Chapter 13 case.

Primary role of Chapter 13 Trustee

• Serves as disbursing agent
• Collects payments from debtor
• Makes distributions to creditors

Automatic Stay

The Chapter 13 bankruptcy petition automatically stays (puts on hold) most actions against you and your property.

Creditors cannot:

• Launch new lawsuits against you
• Continue lawsuits against you
• Garnish your wages
• Call you demanding payments

Creditors will receive notice of the filing of the Chapter 13 petition from the clerk or trustee. This filing also contains a special automatic stay applicable to co-debtors. Unless the bankruptcy court says otherwise, a creditor may not seek to collect consumer debt from anyone who is liable with the debtor.

Relief from immediate foreclosure

The automatic stay under Chapter 13 also provides protection again immediate foreclosure. Chapter 13 lets you cure defaults on a long-term home mortgage by bringing the payments current over a reasonable amount of time.

The debtor is permitted to cure a default with respect to a lien on the debtor’s principal residence and stop the completion of a foreclosure sale under state law.

Repayment Plan

Under Chapter 13, you must file a repayment plan with the bankruptcy petition or within 14 days unless the court gives you an extension. The Chapter 13 plan must provide for the full payment of all claims entitled to priority under section 507 of the Bankruptcy Code (unless the holder of a particular claim agrees to different treatment of the claim).

Repayment plans must be approved by the court, provide for payments of fixed amounts to the trustee, typically on a regular monthly basis. The trustee will then distribute the funds to the creditors according to the plan’s terms. Sometimes creditors are offered less than the full payment of their claims due to the inability of  the debtor to pay the full amount back.

Meeting of Creditors

Within 30 days after the filing of the repayment plan under Chapter 13, even if the court has not yet approved the plan, the debtor must start making payments to the trustee.


A mandatory 341(a) meeting of creditors is held, during which the debtor is examined under oath. It is usually held 20 to 50 days after the Chapter 13 bankruptcy petition is filed. Creditors may appear at this meeting and ask questions regarding your financial affairs and the proposed terms of the repayment plan.

The trustee will run the meeting of creditors and question you regarding the same matters. Bankruptcy judges do not attend the meeting of creditors.

Making the Plan

Under the Chapter 13 bankruptcy filing, you and each creditor will make a plan. Once the court confirms the plan, it is binding both you and your creditors and you are responsible for the plan’s success.

For Chapter 13 to be a success, you must:

• Make regular monthly payments to the trustee
• Learn to live on a streamlined and fixed income for a prolonged period
• Not incur any significant new credit obligations without consulting the trustee

Note: Upon request, your employer can withhold the amount of the payment from your paycheck and transmit it to the chapter 13 trustee. This might further guarantee trust from creditors and success in your Chapter 13 filing.

Failure to make payments may result in the dismissal of your Chapter 13 case or its conversion to a liquidation case under a Chapter 7 bankruptcy.

The Chapter 13 Discharge

The Chapter 13 bankruptcy discharge is complex and has recently undergone major changes. Therefore, you should always consult a competent and highly skilled bankruptcy attorney prior to filing. Also, some trustees now allow automatic payments directly from your checking account to insure regular payments.

Your Chapter 13 will be discharged upon the successful completion of your payment plan. The discharge releases you from all debts provided for by the plan or disallowed (under section 502), with limited exceptions.

Those creditors who were provided for in full or in part under the Chapter 13 plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations.

Because the debtor is submitting to the discipline of a repayment plan from three to five years, Chapter 13 allows for a broader discharge than under Chapter 7.

However, I encourage you to consult with me before simply deciding upon a direction. Bankruptcy law is every changing. Only a thorough examination of your finances can determine your next steps.

Usually, you are released from all debts provided for by the plan or disallowed except certain long-term obligations (such as a home mortgage) on which payments will not be completed until after the last payment under the Chapter 13 plan is due.

You are still responsible for:

• Debts for alimony or child support
• Debts for most government funded or guaranteed educational loans or benefit overpayments
• Debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs
• Debts for restitution or a criminal fine included in a sentence on the debtor’s conviction of a crime
• Debts for income or other taxes

To the extent that these types of debts are not fully paid pursuant to the Chapter 13 plan, you will still be responsible for these debts after the bankruptcy case has concluded.

Note: What I would like to encourage you to do is NOT self-diagnose your financial situation. What I mean is, going to the Internet or guessing at which bankruptcy filing is better for you. People get in debt deeper and into trouble by trying to fix their financial situation themselves.

Counseling you in what you need specifically is what I do. I might be able to  prevent you from having to file for bankruptcy at all . I always look for the best way for you to function in your life and get back on your feet.

I’m with you through the entire process starting from determining the best direction in solving your debit crises. Let’s talk about your situation. I may surprise you with some very hopeful solutions. Let’s discuss whether Chapter 13 is best for you. — Steven Bryson