Understanding Chapter 13 Bankruptcy
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is also known as a “reorganization” bankruptcy. It allows individuals with regular income to develop a plan to repay all or part of their debts over a period of three to five years. The repayment plan is approved by the court and is based on the individual’s income, expenses, and the amount of debt owed.
How Does Chapter 13 Bankruptcy Work?
In Chapter 13 bankruptcy, the debtor proposes a payment plan to repay creditors over a period of three to five years. The plan must be approved by the court and is typically paid through a trustee who collects payments from the debtor and distributes them to creditors. Once the repayment plan is completed, any remaining eligible debts may be discharged.
Chapter 13 bankruptcy allows individuals to keep their property, such as their home or car, as long as they can repay the debts associated with those assets. It can also stop foreclosures, repossessions, and wage garnishments.
Who is Eligible for Chapter 13 Bankruptcy?
To be eligible for Chapter 13 bankruptcy, an individual must have a regular income and unsecured debts totaling less than $419,275 and secured debts totaling less than $1,257,850 (as of April 2021). They must also have completed credit counseling within 180 days before filing for bankruptcy and have filed all tax returns for the previous four years.
What Happens When Someone Files for Chapter 13 Bankruptcy?
Automatic Stay
When someone files for Chapter 13 bankruptcy, an automatic stay goes into effect. This means that all collection attempts by creditors must stop immediately. Any ongoing lawsuits or wage garnishments will be put on hold. This automatic stay is designed to give the debtor a chance to restructure their debts and come up with a repayment plan without any additional financial pressures.
Repayment Plan
Once the bankruptcy petition is filed, the debtor will work with their attorney to develop a repayment plan. This plan will typically last between three and five years, during which time the debtor will make regular payments to a court-appointed trustee. The trustee will then distribute these funds to the creditors according to the terms of the repayment plan. The debtor must make all payments on time and in full to successfully complete the bankruptcy process.
Creditors’ Meeting
After the bankruptcy petition is filed, the court will schedule a meeting of creditors. This meeting gives the creditors an opportunity to ask the debtor questions about their financial situation and repayment plan. The debtor must attend this meeting and answer questions truthfully. Creditors may file objections to the repayment plan if they believe it is unfair or unreasonable. The court will review any objections and make a final decision on the repayment plan.
When Can You Sue Someone Who Has Filed for Chapter 13?
When Can You Sue Someone Who Has Filed for Chapter 13?
If someone has filed for Chapter 13 bankruptcy, it is still possible to file a lawsuit against them under certain circumstances.
Fraudulent Activity
If you believe that the debtor engaged in fraudulent activity, such as hiding assets or submitting false information on their bankruptcy forms, you may be able to sue them. However, you will need to provide evidence to support your claim and may need to obtain permission from the bankruptcy court to proceed with the lawsuit.
Certain Debts Not Included in Bankruptcy
Another situation where you may be able to sue someone who has filed for Chapter 13 bankruptcy is if the debt in question was not included in their bankruptcy filing. For example, if the debtor owed you money for personal injury damages, this type of debt is typically not dischargeable in bankruptcy. In this case, you may be able to take legal action to recover the debt.
It is important to note that if the debt is related to property or assets that are included in the bankruptcy estate, you may need to obtain permission from the bankruptcy court before pursuing legal action.
Overall, suing someone who has filed for Chapter 13 bankruptcy can be a complex process. It is recommended that you consult with an attorney who has experience in bankruptcy law to determine your best course of action.
What Are the Grounds for Legal Action Against Someone Who Has Filed for Chapter 13?
Violation of Bankruptcy Laws
Filing for Chapter 13 bankruptcy involves a complex set of laws and regulations. Those who file for Chapter 13 must adhere to strict guidelines, and any violation of these guidelines can result in legal action. For instance, if it is discovered that the filer purposely omitted certain debts or assets from their bankruptcy filing, they may be subject to legal consequences. Additionally, if the filer attempts to hide assets or income from the bankruptcy court, they could be charged with bankruptcy fraud.
Failure to Make Scheduled Payments
One of the primary reasons individuals file for Chapter 13 bankruptcy is to reorganize their debts and establish a manageable payment plan. Part of this process involves making scheduled payments to creditors in accordance with the terms of the bankruptcy agreement. If someone who has filed for Chapter 13 fails to make their scheduled payments, their creditors could potentially take legal action. Creditors may seek court intervention to have the bankruptcy dismissed, which would allow them to pursue other legal avenues to collect the owed debts.
Violation of Automatic Stay
When someone files for Chapter 13 bankruptcy, an automatic stay is put in place. This stay prevents creditors from taking any further collection actions against the debtor. However, if a creditor violates the automatic stay by continuing to harass or attempt to collect from the debtor, they could be subjected to legal action. The debtor is also protected during this time and any attempt to evict, terminate, or disconnect public utilities by a landlord, electrical company or gas supplier, for example, could lead to legal actions against such entities.
Taking Legal Action Against Someone Who Has Filed for Chapter 13: What You Need to Know
Understanding the Automatic Stay
When someone files for Chapter 13 bankruptcy, an “automatic stay” goes into effect. This means that creditors are immediately prohibited from pursuing any collection efforts against the debtor, including legal action. If you are considering taking legal action against someone who has filed for Chapter 13, it is important to understand that the automatic stay will likely prevent you from doing so.
Challenging the Automatic Stay
In some cases, it may be possible to challenge the automatic stay and continue with legal action against the debtor. However, this process can be complex and requires a thorough understanding of bankruptcy law. It is recommended that you consult with an experienced bankruptcy attorney to determine if challenging the automatic stay is a viable option in your specific case.
Filing a Proof of Claim
If you are owed money by someone who has filed for Chapter 13 bankruptcy, you may still be able to receive payment through the bankruptcy process. This involves filing a “proof of claim” with the bankruptcy court, which outlines the amount of money you are owed and the reasons why. If your claim is approved, you will receive payment from the debtor’s repayment plan over time. It is important to note that secured creditors (those with collateral) generally have priority over unsecured creditors in receiving payment.