Chapter 13 Bankruptcy Rules

Under Chapter 13 bankruptcy rules, an individual can set up a court-approved plan to pay his or her financial obligations. This is just one of six basic types of bankruptcies under the Federal Rules of Bankruptcy Procedure. The Chapter 13 type is also titled as an Adjustment of Debts of an Individual with Regular Income. This type is designed for people who have fallen behind in their financial obligations due to a temporary setback and just need time to catch up. Perhaps there was a temporary job loss, a major medical emergency, or a natural disaster. For example, victims of major hurricane, fire, or flood devastation may need a temporary reprieve to help them get back on their feet. The Chapter 13 bankruptcy rules may offer the opportunity these unfortunate people need to get their lives back to normal so that they can take care of financial obligations.

Federal legislation requires that individuals or married couples must go through credit counseling from an approved agency prior to filing for protection from creditors. The counseling may help the debtors get finances in order without going through the court system. Through the sessions, those being counseled will learn helpful financial principles. Scripture also provides sound economic advice: "Be not thou one of them that strike hands, or of them that are sureties for debts. If thou hast nothing to pay, why should he take away thy bed from under thee?" (Proverbs 22:26-27). However, if the situation requires it, the counseling can also help the debtor decide which one of the basic types of bankruptcies best fit his or her situation. The chapter 13 bankruptcy rules require the debtor to file a simple form, or petition, with the appropriate court and pay the required filing fee. The filing initiates an automatic stay which means that creditors are essentially put on hold. They can no longer take steps to collect the owed money. The court clerk will give the petitioner a docket number or case number which the debtor will later use to put on the memo line of checks or money orders that are given to the trustee.

According to the chapter 13 bankruptcy rules, the petitioner must submit a document, known as a matrix, to the court within seven to ten days after filing the petition. The matrix is a listing of all creditors and addresses. Within another seven to ten days, the petitioner is required to submit a reorganization plan that includes income information, personal assets, and expenses. The document will also include the petitioner's plan for repayment of debts and meeting ongoing obligations within the next three to five years. A trustee or examiner is assigned to the case. The trustee has authority to mediate agreements between the petitioner and creditors; usually the case does not need to appear before a judge. About one to three months after the petition is filed, the trustee arranges what is known as a 341 meeting. The name refers to Section 341 of the Bankruptcy Code. Under chapter 13 bankruptcy rules, the debtor is required to appear before the trustee and creditors, though the creditors seldom attend. The trustee asks the petitioner, who is under oath, various questions regarding the financial situation. The debts owed to each creditor are negotiated so that the final obligation may be less than the original amount. Most creditors negotiate to get at least of the amount that is owed.

Creditors are divided into three classifications and, under chapter 13 bankruptcy rules, repayment depends upon the classification. Secured creditors are such lenders as mortgage companies or auto financing companies. They have an asset, such as a house or vehicle, as collateral for the loan. Payments for these types of assets continue as before the petition was filed and are commonly referred to as payments outside the plan. The court may allow a property to be foreclosed upon or a vehicle to be repossessed if the payments are not kept up. Unsecured creditors are lenders who lent money without collateral. This could include credit card debt, utility payments, and other store accounts. Once the final amounts are negotiated, the debtor sends one check to the trustee who then distributes the funds to the unsecured lenders according to the agreed upon plan. The final classification is the post-petition lenders. These are obligations that the debtor incurred after filing the petition and are not protected by the payment plan. These may include medical bills, utility bills, or additional credit card debt.

Not every debt can be renegotiated to a lesser amount under chapter 13 bankruptcy rules. For example, child support and alimony must be paid as mandated by the courts in child support or divorce proceedings. Past tax bills are not dischargeable, either. Only in extremely rare circumstances are student loans discharged from a petitioner's obligations. If the debt is too high for the petitioner to meet the obligations in the three to five year time frame, the bankruptcy may be converted to a chapter 7. This type of protection wipes the slate clean, to some extent, but petitioners must meet stringent requirements to be eligible for a chapter 7. To exit either chapter 7 or chapter 13 bankruptcies, the petitioner is required to take an approved personal financial management course. The skills learned in this course should help the petitioner in making future financial decisions and to build a secure economic foundation. Bankruptcies stay on an individual's credit report for seven to ten years, depending on the type. Under chapter 13 bankruptcy rules, the notation stays on the credit report for seven years. One of the first steps a person should make after ending the process is to begin rebuilding a positive credit history.

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