Repayment bankruptcy an option to consider

First Posted: 1/16/2015

Last week, the Legal Corner discussed the basics of bankruptcy and some of the benefits it may provide to individuals and certain business entities. This week, we will cover the Chapter 13 bankruptcy process and some of the advantages and disadvantages to filing.

Generally there are two methods of bankruptcy — liquidation and repayment. Chapter 13 bankruptcy involves the repayment process. The repayment method requires the debtor to make a promise to repay some or all of their debts over a period of time, under the supervision of a bankruptcy trustee. Chapter 13 bankruptcy will allow the debtor to keep possession of their personal property while using their current income to repay all or some of their creditors.

This method is usually favorable to debtors with property that is not excused from the liquidation process, and they do not desire to have the property sold as part of the liquidation process. Businesses are unable to file under a Chapter 13 bankruptcy, but may be able to file under Chapter 11.

The Chapter 13 bankruptcy method requires the debtor to file a petition and additional documentation concerning the debtor’s income and finances. Under this method, based on the documentation and records filed with the court, the debtor will propose a repayment plan that involves making payments to their creditors over a three- to five-year period. However, the debtor will not be allowed to enter into a plan that allows payments to exceed five years.

In order to be able to receive a Chapter 13 bankruptcy discharge, the debtor must meet the following requirements; The debtor’s debt cannot exceed the monetary limit stated in the Bankruptcy Code, the debtor must be current on their income tax filings, the debtor must meet their current child support or alimony payments, and the debtor must have completed a personal financial management course.

Additionally, certain debts must be completely repaid under a Chapter 13 plan. Therefore, if the debtor’s current monthly income will not allow them to pay off the required debt within a three- to five-year period, then the court will not confirm the debtor’s plan.

However, a debtor will not be able to receive a Chapter 13 bankruptcy discharge, or release from debt, if one of the following has occurred; If the debtor has filed a bankruptcy petition within the last 180 days, and the petition was dismissed or terminated by the court because the debtor failed to appear in bankruptcy court or failed to comply with the bankruptcy court orders.

Additionally, the debtor will not be able to receive a Chapter 13 discharge if they have filed and received a Chapter 7 bankruptcy discharge within the past eight years or has filed and received a Chapter 13 bankruptcy discharge within the past two years.

One of the major advantages to filing Chapter 13 bankruptcy is that it allows the debtor to be able to keep their property and not go through the liquidation process. More importantly, Chapter 13 offers debtors the opportunity to save their homes from foreclosure. Under a Chapter 13 bankruptcy filing, the debtor is able to stop the foreclosure proceedings and also have the opportunity to pay any delinquent mortgage payments over a period of time. Additionally, Chapter 13 allows the debtor to consolidate their debt and rescheduled payments over the three- to five-year pay period.

During the pay period, the debtor will make the plan payments to a Chapter 13 trustee and the trustee will distribute the payments to the creditors. Therefore, the debtor no longer has to have direct contact with any of their creditors while under Chapter 13 protection.

One of the major disadvantages to filing Chapter 13 is that the debtor is required to completely repay certain debt. The debtor will be locked into the plan for three to five years, and will be required to make all payments in order to be able to discharge any remaining debt.

This also means that all of the debtor’s extra cash, after paying for necessities, will have to be used for the repayment plan. Additionally, a Chapter 13 bankruptcy can remain on your credit report for up to 10 years, so it could have a negative effect on the debtor’s ability to obtain additional credit.

Please remember that this information is only meant to inform our readers. There are more details and requirements to successfully completing the bankruptcy process. If you have additional questions about the Chapter 13 bankruptcy process and some of the options it may be able to provide, please consult an attorney. As always, be informed. Be prepared.

Bellonora McCallum is an attorney at the McCallum Law Firm, PLLC, in Rockingham. Reach her at 910-730-4064 or visit