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Chapter 13 Basics - Protection from Creditors while you pay them what you can afford

Posted by attorney Ronald Holland

Chapter 13 – Repayment of Debts

Chapter 13 is designed for individuals with a regular and stable source of income who are temporarily unable to pay their debts but who desire to use their best efforts and good faith to pay them in installments over a period of time subject to the protections afforded by the Chapter 13 rules. You are only eligible for Chapter 13 if your debts do not exceed certain dollar amounts set forth in the Bankruptcy Code.

Under Chapter 13 you must file a plan with the Court to repay your creditors all or part of the money that you owe them, using your future earnings or by the disposition and/or abandonment of certain collateral such as land and motor vehicles. You are protected from your creditors in most case upon the filing of your case but your plan must be approved by the Court before it can take effect.

The new bankruptcy laws require you to perform a “Means Test" to help determine your disposable income. A Means Test is a formula that provides a reporting and calculation of “current monthly income". In chapter 13 cases, “current monthly income" is used to determine the disposable income that must be contributed to payment of unsecured creditors.

Under Chapter 13, unlike Chapter 7, you may keep all of your property, both exempt and non-exempt, as long as you continue to make payments under the plan. After completion of payments under the plan, your debts are discharged except for any domestic support obligations, student loans, and certain taxes, among others.

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