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Chapter 13 Bankruptcy in Arizona

Tucson Chapter 13 Bankruptcy LawyerA chapter 13 bankruptcy is called debt adjustment, as it gives the debtor the opportunity to adjust his or her financial affairs without having to liquidate current assets. It is also sometimes called a wage earner’s plan, because an individual needs to have regular income to file a Chapter 13 bankruptcy. Rather than being designed to pay debts out of the debtor’s current assets, a Chapter 13 case usually involves payment of debts out of future income (although the debtor may also decide on some payment out of current assets). The debtor is allowed to keep and use all property, whether exempt or not, and to pay some or all debts according to a Plan approved by the Bankruptcy court.

Chapter 13 Bankruptcy Plan

The Plan is a critical feature of a Chapter 13 bankruptcy, and what most distinguishes it from a Chapter 7 bankruptcy. The Plan provides for the repayment of the debtor’s debts over three to five years (the length of the repayment period depends on the debtor’s income). The debtor does not need to repay all of his debts under the Plan, but the debtor does need to commit all of his projected disposable income over the applicable time period to repaying his creditors. Under the Plan, the debtor makes regular payments to the trustee, who then distributes these payments to the debtor’s creditors. Payments begin thirty days after the filing of the Chapter 13 case, and continue for the duration of the Plan (three or five years).

Because Chapter 13 allows a debtor to catch up on past due payments, it is particularly beneficial to those individuals who have fallen behind on payments of a secured debt, like a mortgage or a car loan, and need time to make up the past due amounts. It should be noted that a Chapter 13 bankruptcy will not help a debtor save a home or a car on which he is delinquent if the debtor’s income is not sufficient to make regular monthly payments on the mortgage or car loan. However, in many instances, by using the Chapter 13 procedure to reduce or eliminate payments on other debts, like credit cards, sufficient income can be freed to allow the debtor to make payments on the mortgage or car loan.

Chapter 13 Bankruptcy Process

A Chapter 13 bankruptcy, just like a Chapter 7 bankruptcy, is initiated by the filing of a petition with the Bankruptcy court. The debtor must also pay a filing fee of $310 and file statements listing information about the debtor’s financial affairs, including the debtor’s assets, liabilities (debts), income, and expenses. The filing of the petition automatically stops most collection actions against the debtor and the debtor’s property. In addition to the above documents, the debtor must also file (through his attorney if he has one) a Chapter 13 Plan.

Twenty to fifty days after the filing of the petition, the debtor will attend a meeting of creditors, where, just like in a Chapter 7 case, the trustee and the creditors will have an opportunity to ask the debtor questions. Just like in Chapter 7, in most cases the creditors do not attend the meeting, and only the trustee is present and asks question (click here for a list of questions the trustee may ask).

Within forty five days after the meeting of creditors the bankruptcy judge must hold a hearing to determine if the Plan can be confirmed (approved).  However, in most cases, this hearing gets postponed while the trustee reviews the Plan.  Confirmation of the Plan makes it formally binding on both the debtor and the debtor’s creditors, and the debtor thereafter continues making regular payments to the trustee. Once the debtor completes payments under the Chapter 13 Plan, and complies with certain administrative requirements, the debtor will receive a discharge.

The discharge releases the debtor from all debts provided for by the Plan or disallowed under the Bankruptcy Code, with limited exceptions. This means that the debtor is released from personal liability for these debts and the creditors owed those debts cannot take any collection actions against the debtor at any time in the future.

Chapter 13 Pros

  • Can save home from foreclosure by repaying past due mortgage payments over time
  • Can extend other secured debts over the life of the Chapter 13 plan
  • No direct contact with creditors while under Chapter 13 protection

Chapter 13 Cons

  • Debtor must have regular income
  • Disposable future income must be committed to repaying creditors

Learn More About Chapter 13 Bankruptcy

To learn whether Chapter 13 bankruptcy is advisable in your situation, please contact a Phoenix and Tucson Chapter 13 bankruptcy attorney at Yusufov Law Firm PLLC via this website or by calling (520) 745-4429 in Tucson, or (480) 788-0098 in Mesa and Phoenix, for a for a free consultation.

For additional information, you may also be interested in the following articles: Common Questions About Chapter 13 Bankruptcy, 7 Mistakes to Avoid When Filing for Bankruptcy in Arizona

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