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File Chapter 13 bankruptcy

Save Your Home From Foreclosure

Stop Repossession or Get Your Car Back

Americans typically file chapter 13 bankruptcy as a tool to stop mortgage foreclosure, stop sheriff sale, stop car repossession, stop garnishment, and stop lawsuits. By filing, you could save your home from foreclosure or save your car from repossession. Chapter 13 bankruptcy filers are permitted to keep their property by repaying creditors out of their future income.

People who file chapter 13 bankruptcy draft repayment plans which must be approved by the bankruptcy court at a court hearing. Bankruptcy filers must pay the chapter 13 trustee the amounts set forth in their plan. Bankruptcy filers receive a bankruptcy discharge after they complete their chapter 13 repayment plans. But, chapter 13 is only available to individuals with regular income whose debts do not exceed certain debt limits established by the U.S. Congress--- currently $1,010,650 for secured debts and $336,900 for unsecured debts.

Chapter 13 Topics:

  1. Court Cases of Interest
  2. Legislation Proposed
  3. Chapter 13 Bankruptcy Basics
  4. Stop Foreclosure and Save Your Home
  5. Stop Repossession or Get Your Car Back
  6. Advantages of Chapter 13
  7. Chapter 13 Eligibility
  8. How Chapter 13 Works
  9. The Chapter 13 Plan and Confirmation Hearing
  10. Making the Plan Work
  11. The Chapter 13 Discharge
  12. The Chapter 13 Hardship Discharge

Recent Court Cases

Below are some interesting legal cases involving Americans’ attempts to file Chapter 13 bankruptcy to save a home or vehicle and to eliminate or discharge debt. The cases offered on this website are removed and replaced periodically with newer cases. So I urge you to check back to this website periodically for the latest developments. However, prior cases are transferred from this webpage to my bankruptcy blog for you to retrieve. You are encouraged to view my bankruptcy blog to discover more information about eliminating or discharging debts. Visit Your Bankruptcy Advisor Blog or contact me to talk to an experienced bankruptcy attorney.

  1. Howard v. AmeriCredit Financial Services, No.09-3181 (in re Aubrey Howard), (7th Cir. 3/1/10). In Howard, the Seventh Circuit addressed the issue of whether a Chapter 13 bankruptcy debtor can exercise the "cramdown" provisions of the Bankruptcy Code relative to the "negative equity" on a vehicle trade-in. Negative equity is the difference between the amount owed on a trade-in vehicle and the actual value of said vehicle. Vehicle owners frequently do not have sufficient cash reserves to satisfy the negative equity. So, dealers frequently add the negative equity to the cost of a new vehicle and provide financing for both.

    Debtor did just that. Debtor signed an agreement to pay the negative equity and the cost of the new vehicle; he also provided the new vehicle as security for that obligation. Debtor later filed bankruptcy. In the Chapter 13, Debtor did not dispute that the cost of the new vehicle could not be crammed-down to the value of the new vehicle because said vehicle was purchased with 910 days of the bankruptcy filing date. However, debtor asserted that the negative equity portion of the new loan could be crammed-down because it was not a part of the purchase money security interest.

    The Seventh Circuit disagreed with debtor and affirmed the bankruptcy court ruling. The Court held that negative equity can be part of a purchase money security interest and if thus secured is not subject to the cramdown power of the bankruptcy judge in a Chapter 13 bankruptcy.

  2. Chapter 13 debtors seeking bankruptcy relief must propose and have confirmed a chapter 13 repayment plan. Debtors are subject to a "means test" if their household incomes are above the median income level for their state. Above-median-income debtors must proposed chapter 13 plans that devote all of their "projected disposable income" to the repayment of creditors. Problematically, the term "projected disposable income" is not defined by the US Bankruptcy Code.

    In the case of In re Wisham, 416 B.R. 790 (Bankr. M.D.FL 2009), debtors were above-median-income earners who had proposed a repayment plan amount that was less than the amount the trustee believed was mandated by the Bankruptcy Code. Debtors had deducted from their "projected disposable income" calculation an amount debtors believed they were entitled to deduct pursuant to standards promulgated by the IRS for vehicle ownership.

    The chapter 13 trustee objected to the plan’s confirmation alleging that the plan failed to provide the appropriate projected disposable income amount. Specifically, the trustee challenged debtors’ ability to take a vehicle ownership expense deduction for a motor vehicle that debtors owned free and clear of any liens. The trustee maintained that the projected disposable income amount provided in the chapter 13 plan should be increased by the amount of the deduction taken by debtors for the vehicle deduction.

    The bankruptcy court rejected the trustee’s position and held that debtors could deduct a vehicle ownership expense when calculating the "projected disposable income." The court allowed debtors to deduct the vehicle expense amount identified in standards promulgated by the Internal Revenue Service even though debtors owned the vehicle outright and had no lease or contract payments thereon.

  3. In re Knecht, 410 B.R. 650 (Bankr. D. Montana 2009). A bankruptcy debtor filed chapter 13 bankruptcy and proposed a repayment plan that would cause the student loan creditor to be the only unsecured creditor to receive any money. Specifically, the debtor sought confirmation of the repayment plan which proposed to pay more than $36,000 to the student loan creditor while paying nothing to the other unsecured creditors. The trustee objected asserting that the proposed plan unreasonably “discriminated” among unsecured creditors.

    The bankruptcy court sustained the trustee’s objection and denied confirmation, holding that the student loan debtor had failed to satisfy the burden of proving that the repayment plan’s separate classification of student loan debt did not unfairly discriminate against the other unsecured creditors.

    The court believed that a student loan creditor cannot create a chapter 13 plan that allows a student loan debtor to repay student loans “out of the hide” of other unsecured creditors. Instead, the other unsecured creditors must be paid their pro rata share. For example, let’s assume a debtor owes both $36,000 in student loan debt and another $36,000 in credit card debt. Now, if that debtor would file a plan calling for unsecured creditors to receive $36,000, then the student loan creditor would only be receiving $18,000 while the credit card creditors would also be receiving the other $18,000. Clearly this result is not as beneficial to a debtor because the $18,000 paid to the credit card creditor would be wasted since any unpaid credit card debt would be discharged---whether $18,000 is still owed or the full $36,000 is still owed; moreover, this result is not as beneficial because the $18,000 of unpaid student loan debt would survive the bankruptcy and have to be repaid--- absent a separate adversary complaint proving undue hardship.

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Legislation Proposed

  1. U.S. Senator Jack Reed, D-R.I., introduced a bill on September 30, 2009, that would require lenders to offer loan modification to qualified homeowners and make non-compliance a defense to foreclosure. Reed's Preserving Homes and Communities Act of 2009 (S.1731) is cosponsored by fellow democratic senators Dick Durbin, Sheldon Whitehouse, and Jeff Merkley.

    "As foreclosure rates continue to climb, a lasting economic recovery becomes harder to reach," said Durbin. "Until we stabilize the housing market, we simply won't get a handle on the broader economic crisis. Voluntary efforts to keep families in their homes have failed. This bill will force lenders to modify qualified mortgages, create a homeowners assistance program, and give states a bigger role in mediation efforts."

    The bill would expand the existing loan modification program to more qualified homeowners. It would give homeowners protection against all foreclosure proceedings while waiting for a loan modification analysis, and provide homeowners with the legal tools to help save their homes when lenders fail to follow the program's rules, Reed said. Source: Consumer Bankruptcy News (10/22/09).


  2. US House of Representatives’ Financial Services Committee Chairman Barney Frank has now joined Senator Dick Durbin in renewing a call for mortgage modification legislation if the pace of voluntary modifications does not improve. Since the Obama administration’s "Home Affordable Mortgage Program" (HAMP) went into effect in March only about 360,000 borrowers have seen their mortgage payments lowered, well below the 500,000 goal set by the administration by November 1, and only 15 percent of the 2.7 million now eligible for relief under the program. In June, HAMP officials began conducting more rigorous reviews of servicers, and have started a “second look” program, in which servicers’ decisions to approve or deny HAMP modifications are scrutinized.

    Compliance officials are also analyzing samples of HAMP-modified loans to track error rates with servicers. Government officials have tried to light a fire under HAMP servicers on several occasions to speed up the modification process. The Treasury has set a target of modifying four million mortgages by 2012, but Moody’s estimates that HAMP will in fact modify only about two million.

    "The best lobbyists we have for getting bankruptcy legislation passed are the servicers who are not doing a very good job of getting mortgages modified," quipped Mr. Frank. He may insert a cramdown provision into legislation that would overhaul the financial system, a bill that will become a top priority in early 2010.

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Chapter 13 Bankruptcy Basics

Chapter 13 bankruptcy is designed for individuals with regular income who would like to pay all or part of their debts in installments over a period of time. Individuals are willing to repay certain debts to stop foreclosure, stop repossession, stop wage garnishments, and stop sheriff sales. The person filing chapter 13 bankruptcy to save the home is only eligible for chapter 13 if that person's debts do not exceed certain dollar amounts set forth in the bankruptcy laws. Under chapter 13 bankruptcy, the debtor must file with the court a plan to repay creditors all or part of the money that is owed them, using future earnings. The period allowed by the court to repay the debt may be three years, but no more than five years, depending upon income and other factors. The bankruptcy court must approve the repayment plan before it can take effect. After completing the payments pursuant to the plan, the debts of the person filing chapter 13 bankruptcy are generally discharged except for domestic support obligations; most student loans; certain taxes; most criminal fines and restitution obligations; certain debts which are not properly listed in the bankruptcy papers; certain debts for acts that caused death or personal injury; and certain long term secured obligations.

A chapter 13 bankruptcy case is the most common of the repayment plan cases. It enables individuals with regular income to develop a repayment plan to pay all or part of their debts. Under this chapter, the person filing chapter 13 proposes a repayment plan to make installments to creditors during a three to five year period. If current monthly income is less than the applicable median amount, the plan will be for three years unless the court approves a longer period for cause. If the bankruptcy filer's current monthly income is greater than the applicable median amount, the plan must be for five years. In no case may a plan provide for payments longer than five years. During the case, the bankruptcy law forbids creditors from starting or continuing collection efforts.

A person who knowingly and fraudulently conceals assets or makes a false oath or statement under penalty of perjury, either orally or in writing, in connection with a bankruptcy case is subject to a fine, imprisonment, or both. All information supplied by a person filing bankruptcy in connection with a bankruptcy case is subject to examination by the Attorney General acting through the Office of the United States Trustee, the Office of the United States Attorney, and other components and employees of the Department of Justice.

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Stop Foreclosure and Save Your Home

Many clients have asked me "Can my home be saved by filng Chapter 13 bankruptcy?" For many people, the answer is emphatically YES! Chapter 13 bankruptcy is the primary bankruptcy tool utilized to save homes that are in foreclosure. The automatic stay provisions of the US Bankruptcy Code require mortgage lenders to immediately cease all collection actions --- including foreclosure actions and sheriff sales.

Indeed, a Chapter 13 bankruptcy filing can stop a sheriff sale of a home subject to a foreclosure lawsuit. I have stopped sheriff sales after being engaged less than 24 hours prior to the pending sale. The secret is that the bankruptcy case must be filed PRIOR to the actual sheriff sale. In Illinois, you cannot reverse a sheriff sale by filing Chapter 13. Therefore, time is of the essence. You must beat the clock and file your bankruptcy prior to the mortgage lender or sheriff conducting the sheriff sale. Please don't procrastinate. Act Today!

Chapter 13 allows you to keep your home because you are agreeing to repay the mortgage default in a timely and systematic fashion according to a repayment plan. You must also agree to pay in a timely manner all future mortgage payments coming due after the bankruptcy case is filed. The repayment obligations are set forth in a Chapter 13 repayment "plan" that is drafted by your bankruptcy attorney and approved by the US Bankruptcy Court.

You can force the mortgage lender to give you much better contractual terms then the terms you had originally agreed to when you got the mortgage loan. The loan requires you to pay the mortgage and to cure any default that may exist immediately. However, the Chapter 13 plan can force the mortgage lender to give you a repayment plan that allows you to repay any mortgage loan default over a repayment period that can span from 3 to 5 years.

Chapter 13 bankruptcy law is complicated and requires a skilled lawyer to interpret. Attorney Schaller is part of the National Bankruptcy College Attorney Network, the American Bankruptcy Institute, and the National Association of Consumer Bankruptcy Attorneys. To talk to a bankruptcy lawyer about this topic just click Find a Bankruptcy Attorney . To return to the top of this page click Top of Page.

Stop Repossession or Get Your Car Back

Clients have told me that they feel "violated" after their cars had been repo'ed --- especially when taken in the middle of the night or under the auspices of a person posing to be a policeman.

The good news is that Chapter 13 bankruptcy can force the vehicle lender to return the car, truck, or van so you can utilize it as transportation to get to work. Let's face it, people need transportation to get to and from work and school. The repossession of a car can cause immediate and extreme hardship on some people. Clients of mine have called me in a panic stating that the repo man is at their door and demanding the keys to the car. Others have called claiming that the repo man wants to tow the car from the garage even though the garage door is closed and locked.

You have legal rights! You need an attorney to force the vehicle lender to live up to the letter of the law. You need protection from a pending repossession and protection if the car, truck or van is repossessed.

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Advantages of Filing Chapter 13 Bankruptcy

A person filing Chapter 13 bankruptcy enjoys a number of advantages that are not enjoyed by a person filing chapter 7 bankruptcy. Most importantly, you could save your home from foreclosure by filing chapter 13 bankruptcy. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Nevertheless, they must still timely make all mortgage payments that come due during the chapter 13 plan. Another advantage of chapter 13 is that it allows individuals to modify the terms of the contracts with secured creditors (other than a mortgage for the primary residence) and extend the repayment terms over the life of the chapter 13 plan. Doing this may lower the monthly payments. Chapter 13 also has a special provision that protects third parties who are liable with the debtor on consumer debts. This provision may protect spouses who co-sign on secured debt obligations. Chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under chapter 13 protection.

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Chapter 13 Eligibility

Both self-employed and traditionally employed people are eligible to file chapter 13 bankruptcy. But there are restrictions. The unsecured debts of the person filing chapter 13 must be less than $336,900 and secured debts must be less than $1,010,650. A corporation or partnership may not be a chapter 13 debtor.

An individual cannot file under chapter 13 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the willful failure of the person filing chapter 13 to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. In addition, no individual may file a chapter 13 case that person has received credit counseling from an approved credit counseling agency within 180 days before filing. There are exceptions in emergency situations.

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How Chapter 13 Bankruptcy Works

There is much work to be done prior to filing a chapter 13 bankruptcy case. A comprehensive strategy should be employed to gather and review necessary financial documentation, digest the bankruptcy laws and procedure, and execute the bankruptcy petition, schedules, statements, and plan. An experienced bankruptcy attorney would be helpful to guide you through this process.

A chapter 13 bankruptcy case begins with the filing of a petition with the bankruptcy court in your district. In addition to filing the bankruptcy case, the person filing chapter 13 bankruptcy must also file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a statement of financial affairs; (4) a schedule of executory contracts and unexpired leases; (5) a creditors matrix; (6) a repayment plan; and (7) a statement of monthly income/ means test . The person filing chapter 13 bankruptcy must file a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling. Next, the person filing chapter 13 bankruptcy must also provide the assigned case trustee with copies of pay stubs/pay advices for the 60-day period prior to the date the case was filed. Plus, the person filing chapter 13 bankruptcy must provide the case trustee a copy of tax returns or IRS tax transcripts for the past four tax years as well as any tax returns filed during the case. A husband and wife may file a joint petition or individual petitions. Even if filing jointly, a husband and wife are subject to all the document filing requirements of individual debtors. Official bankruptcy forms are required and highly structured. These forms can be obtained from your bankruptcy attorney.

Filing bankruptcy is not free. The Clerk of the US Bankruptcy Court will charge the person filing chapter 13 bankruptcy $274 to file the bankruptcy case. The person filing chapter 13 bankruptcy must also pay for the pre-filing bankruptcy credit counseling course (approximately $25 to $50) and the bankruptcy filer must pay for the post-filing bankruptcy debtor education course (approximately $17 to $50).

In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, schedules, and plan, the debtor must compile the following information:

  1. A list of all creditors and the amounts and nature of their claims;
  2. The source, amount, and frequency of the debtor's income;
  3. A list of all of the debtor's property; and
  4. A detailed list of the debtor's monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

Married couples filing bankruptcy must gather the same information for both spouses regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing a bankruptcy case. In a situation where only one spouse is prepared to file a bankruptcy case, the income and expenses of the non-filing spouse is required so that the court, the trustee and creditors can evaluate the household's financial position.

Filing a chapter 13 bankruptcy case automatically stays (stops) most collection actions against the person filing chapter 13 bankruptcy or their property. For example, file a chapter 13 bankruptcy case to stop foreclosure, stop sheriff sale, stop repossession, stop garnishment, and stop lawsuit. But there are exceptions. The filing of the bankruptcy case does not stop certain types of actions listed under 11 U.S.C. § 362(b), like police actions. The automatic stay would not be in effect at all if the person filing chapter 13 bankruptcy had two prior bankruptcy cases pending during the 12 month period prior to filing a new bankruptcy case; however, the bankruptcy court could impose the automatic stay on creditors after a motion and hearing. In other cases, the stay may be effective only for a short time; for example, the automatic stay would be in force for only 30 days (unless extended upon motion and a court hearing) if the person filing chapter 13 bankruptcy had one prior case pending during the 12 month period prior to filing a new bankruptcy case. The automatic stay arises automatically by operation of law and does not require any court hearing or judicial action. As long as the stay is in effect, creditors generally may not initiate and must stop foreclosure, stop sheriff sale, stop lawsuit, stop wage garnishment, demand letter, or even telephone calls demanding payments. The bankruptcy attorney could provide written notice to the creditors if a critical action is pending on the day the bankruptcy case was file. Either way, the bankruptcy clerk gives notice of the bankruptcy case filing to all creditors whose names and addresses are provided by the person filing bankruptcy .

When an individual files a chapter 13 petition, an impartial trustee is appointed to administer the case. In some districts, the U.S. trustee or bankruptcy administrator appoints a standing trustee to serve in all chapter 13 cases. The chapter 13 trustee both evaluates the case and serves as a disbursing agent, collecting payments from the person filing chapter 13 bankruptcy and making distributions to creditors.

The person filing chapter 13 bankruptcy is required to meet with the chapter 13 trustee between 20 and 40 days after the petition is filed. The trustee will conduct a Section 341 meeting of creditors to review the financial documents and court papers filed with the clerk of the court when the bankruptcy case was filed. During this meeting, the bankruptcy trustee places the person filing chapter 13 bankruptcy under oath, and both the trustee and creditors, if present, may ask questions. To file chapter 13 bankruptcy, a person must agree to attend the meeting in person. This is a great time to have a bankruptcy attorney at one's side. The person filing chapter 13 bankruptcy must truthfully answer questions regarding financial affairs and property. If both spouses have filed a joint petition, both must attend the creditors' meeting and answer questions.

Again, the person filing chapter 13 bankruptcy must tell the truth or risk losing the bankruptcy discharge. More importantly, false testimony under oath would be perjury and could result in criminal prosecution. The person filing chapter 13 bankruptcy is also required to cooperate with the trustee and to provide any financial records or documents that the trustee requests. The bankruptcy laws require the trustee to ask questions at the meeting of creditors to ensure that the person filing chapter 13 bankruptcy is aware of the potential consequences of seeking a discharge in bankruptcy such as the effect on one's credit history, the ability to fund the repayment plan with future income, the ability to file a bankruptcy case under a different bankruptcy chapter, and the effect of receiving a discharge. Some trustees provide written information on these topics at or before the meeting to ensure that the person filing chapter 13 bankruptcy is aware of this information. The bankruptcy judge assigned to your case will not attend the meeting.

Most people who file chapter 13 bankruptcy file chapter 13 to save the home from foreclosure. The automatic stay stops a pending foreclosure proceeding as soon as the individual files the chapter 13 petition. The individual may then bring the past-due payments current over a reasonable period of time. However, a person filing chapter 13 bankruptcy cannot prevent eviction by filing a chapter 13 bankruptcy case if the home was already lost to foreclosure. The debtor may also lose the home if he or she fails to make the regular mortgage payments that come due after the chapter 13 filing.

Any creditor hoping to receive distributions from the bankruptcy estate must file their proof of claims with the court within 90 days after the first date set for the meeting of creditors. A governmental unit, however, has 180 days from the date the case is filed file a proof of claim.

After the meeting of creditors, the person filing chapter 13 bankruptcy, the chapter 13 trustee, and those creditors who wish to attend will come to court for a hearing on the bankruptcy filer's chapter 13 repayment plan.

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The Chapter 13 Plan and Confirmation Hearing

The person filing chapter 13 bankruptcy must file a repayment plan within 15 days after the bankruptcy case is filed. A plan must be submitted for court approval and must provide for payments of fixed amounts to the bankruptcy trustee on a regular basis, typically monthly. Once confirmed by the bankruptcy court, the trustee then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims.

There are three types of claims provided for in a repayment plan: priority, secured, and unsecured. Priority claims are unsecured claims held by creditors who are granted special status by the bankruptcy laws, such as most taxes and the costs of bankruptcy proceeding. Secured claims are those for which the creditor, absent chapter 13 filing, could have the right to foreclose on certain assets or repossess assets if the person filing chapter 13 does not pay the underlying debt. In contrast to secured claims, unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by the person filing chapter 13 bankruptcy.

The plan must pay priority claims in full unless a particular priority creditor agrees to different treatment of the claim or, in the case of a domestic support obligation, unless the debtor contributes all disposable income towards a five-year repayment plan.

If you want to save your home, then the person filng bankruptcy must agree to pay future monthly mortgage payments in an amount consistent with the terms of the original note. No modification of the postpetition mortgage payment is allowed at this time, although Congress has been consider legislation. Any default in the mortgage payment obligation prior to the chapter 13 bankruptcy case being filed can be restructured in a chapter 13 plan. The mortgage arrearage can typically be repaid on a month-by-month basis over a several year period. If the person filing chapter 13 wants to keep other collateral securing a particular claim, the plan must provide that the holder of the secured claim receive at least the value of the collateral. If the obligation underlying the secured claim was used to buy the collateral (e.g., a car loan), and the debt was incurred within certain time frames before the bankruptcy filing, the plan must provide for full payment of the debt and not just the value of the collateral at the time the case was filed. Payments to certain secured creditors may be extended beyond the original loan repayment schedule. This plan treatment can be quite confusing to non-attorneys, and a skilled bankruptcy lawyer should be contacted to determine the proper treatment of secured claims in the plan.

The plan need not pay unsecured claims in full as long it provides that the person filing bankruptcy will pay all income over the term of the plan and as long as unsecured creditors receive at least as much under the plan as they would receive if the assets of the person filing bankruptcy were liquidated under chapter 7.

The person filing chapter 13 bankruptcy must start making monthly plan payments to the chapter 13 trustee within 30 days after filing the bankruptcy case. The first payment must be made even if the plan has not yet been approved by the court. Failure to make the plan payments is fundamental to confirming a repayment plan and a statutory ground to dismiss the bankruptcy case. If any secured loan payments or lease payments come due before the debtor's plan is confirmed, the person filing chapter 13 bankruptcy must make adequate protection payments directly to the secured lender or lessor - deducting the amount paid from the amount that would otherwise be paid to the trustee.

Creditors will receive 25 days' notice of the hearing and may object to confirmation after review its terms. Either a creditor or the trustee could object to the proposed repayment plan. The most frequent objections are that payments offered under the plan are not being paid to the trustee by the bankruptcy filer or that payments to be paid to creditors are less than creditors would receive if the assets owned by the person filing chapter 13 bankruptcy were liquidated or that the bankruptcy filer does not commit all projected disposable income for the required three or five year period.

The bankruptcy court will review the original or any modified repayment plan at the confirmation hearing. The confirmation hearing is typically held no later than 45 days after the meeting of creditors. At the hearing, the bankruptcy judge must decide whether the plan is feasible and meets the standards for confirmation set forth in the bankruptcy laws. If the court confirms the plan, the chapter 13 trustee will distribute funds received under the plan as soon as is practicable. If the court declines to confirm the plan, the bankruptcy filer may file a modified plan. Typically, the person filing bankruptcy will attempt to negotiate the resolution of any object prior to the confirmation hearing. If a resolution can be negotiated, then the repayment plan is modified and the court will entertain the modified plan. If the court will not confirm a modified plan or if the financial circumstances of the bankruptcy filer has deteriorated since the case was filed, then the bankruptcy filer may consider converting the case to a chapter 7 case. If the court declines to confirm the plan or the modified plan and instead dismisses the case, the court may authorize the trustee to keep some funds for costs to the trustee and debtor's counsel, but the trustee must return all remaining funds to the person filing bankruptcy.

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Making the Plan Work

A confirmed bankruptcy plan is a binding arrangement. The prior contractual terms entered into prior to the bankruptcy are no longer controlling. Instead, the provisions of a confirmed plan bind the debtor and each creditor. The person filing bankruptcy must make every effort to make the plan succeed. The person filing chapter 13 bankruptcy must make regular payments to the trustee with certified funds either directly or through payroll deduction. Often, the hardest part of a chapter 13 case is the adjustment to living on a fixed budget for a prolonged period. Furthermore, while confirmation of the plan entitles the person filing bankruptcy to retain property as long as payments are made, no new debt may be incurred court approval garnered after a motion and hearing. The court's review the terms of the proposed additional debt with an eye towards the impact on the bankruptcy filer's ability to fund the plan.

The trustee prefers that the person filing chapter 13 bankruptcy make plan payments through payroll deductions. This practice increases the likelihood that payments will be made timely and that the plan will be completed successfully. If the person filing bankruptcy fails to make the payments due under the confirmed plan, then the court may dismiss the case or convert it to a liquidation case under chapter 7 of the bankruptcy laws. The court may also dismiss or convert the case if the bankruptcy filer fails to pay any post-filing domestic support obligations, including child support and alimony, or fails to make required tax filings during the case.

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The Chapter 13 Discharge

A person filing chapter 13 bankruptcy is entitled to a discharge upon completion of all payments under the chapter 13 plan so long as the bankruptcy filer: (1) certifies that all domestic support obligations that came due, if any, prior to making such certification have been paid; (2) has not received a discharge in a prior case filed within a certain time frame (two years for prior chapter 13 cases and four years for prior chapter 7, 11 and 12 cases); and (3) has completed an approved course in financial management.

The discharge releases the person filing bankruptcy from all debts provided for by the plan or otherwise disallowed, with limited exceptions. Creditors provided for in full or in part under the chapter 13 plan are prohibited from initiating or continuing any legal action against the bankruptcy filer to collect the discharged obligations.

As a general rule, the discharge releases the person filing chapter 13 bankrutpcy from all debts provided for by the plan or disallowed, with the exception of certain debts. Debts not discharged in chapter 13 include certain long term obligations (such as a home mortgage), debts for alimony or child support, certain taxes, 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, and debts for restitution or a criminal fine included in a sentence on the bankruptcy filer's conviction of a crime. To the extent that they are not fully paid under the chapter 13 plan, the person filing chapter 13 bankruptcy will still be responsible for these debts after the bankruptcy case has concluded. Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for restitution or damages awarded in a civil case for willful or malicious actions that cause personal injury or death to a person will be discharged unless a creditor timely files and prevails in an action to have such debts declared nondischargeable.

The discharge in a chapter 13 case is somewhat broader than the discharge in a chapter 7 case. Debts dischargeable in a chapter 13 case, but not in a chapter 7 case, include debts for willful and malicious injury to property (as opposed to a person), debts incurred to pay nondischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings.

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The Chapter 13 Hardship Discharge

After confirmation of a plan, circumstances may arise that prevent the person filing chapter 13 bankruptcy from completing the plan. In such situations, like severe disability, the bankruptcy filer may petition the court to grant a hardship discharge. Generally, such a discharge is available only if: (1) the failure to complete payments is due to circumstances for which the bankruptcy filer should not be justifiably held accountable; (2) the value of property actually distributed under the plan on each allowed unsecured claim is not less than the amount that would have been paid had the estate been liquidated under chapter 7; and (3) modification of the plan is not practicable. Severe physical injury or mental illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge. The hardship discharge is more limited than the discharge described above and does not apply to any debts that are nondischargeable in a chapter 7 case.

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