Welcome to our Tom Scott & Associates (TSA) bankruptcy blog. My name is John Hauber and I am a staff attorney at TSA.  Each week, Tom Scott and Associates will post a new blog regarding an aspect of consumer bankruptcy.  This blog will start with a 13 part discussion of Chapter 13 bankruptcy and the various benefits and potential disadvantages.   We will always welcome your questions and comments.

Let’s get started!

Question 1)  What is a Chapter 13 Bankruptcy?

There are many Chapters in the Bankruptcy Code (Chapters 7, 9, 11, 12, 13, and 15), but generally only Chapters 7 and 13 deal with individual consumer debts. The “goal” of any Chapter of bankruptcy is to try and get some money to creditors in exchange for getting rid of (or “discharging”) that remaining debt.  A Chapter 7 bankruptcy is a “liquidation” which is generally limited to individual households with low income or extraordinary monthly expenses.  Individuals with above-average income or those who have filed a Chapter 7 in the prior eight years may be required to file a Chapter 13 bankruptcy.  A Chapter 13 is a reorginizational bankruptcy whereby an individual debtor with regular income offers to repay a portion of his or her debts over a period of time, ranging from three to five years.  A debtor proposes a plan of repayment, offering a monthly amount to the Chapter 13 bankruptcy trustee for a specified period of time; the total offer is the base amount.  The trustee then distributes it to creditors as directed by the plan and once the plan is complete the remaining unsecured debts are discharged. The benefits of a Chapter 13 include: 1) The automatic stay – a ”stay” is just that … the court ordering your creditors to “stay” (just like a dog).  From the moment you file bankruptcy creditors are prohibited from taking any steps to collect a debt and any collection that has started (including garnishment and foreclosure) must cease; 2) Repayment based upon what you can afford to pay – Tom Scott and Associates will closely review you income and subtract from that the expenses that are “reasonable and necessary for the support of yourself and your family.”  The amount that is left over is the amount that will be repaid by the court to your creditors.  In other words the amount that you repay is not related to the amount you owe, but instead is based upon what you can afford to repay.  A Chapter 13 bankruptcy is not a negotiation with your creditors. but is only based upon your income and expenses; 3) Discharge of debts – A plan can be created that will get you current on a home, lower a car payment, repay tax obligations with no penalties, repay child support, and maybe even remove a second mortgage on a home with no equity.  Once the plan is complete the court will enter a Discharge Order that will discharge any unpaid unsecured debt.

Stay tuned for week 2 when we start our discussion regarding why someone who qualifies for Chapter 7 might find MORE relief in a Chapter 13.  In the meantime, please feel free to contact me directly at JHauber@TomScottLaw.com with any questions or to schedule a free consultation to discuss you financial condition in more detail.