Content Last Updated
06/26/04

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ADJUSTMENT OF DEBTS OF AN
INDIVIDUAL WITH REGULAR INCOME

The Title of Chapter 13 is "Adjustment of Debts of an Individual with Regular Income." Chapter 13 is often referred to as "Wage-Earner Bankruptcy." Most often used by individual consumers to reorganize their financial affairs under a repayment plan that must be completed within three to five years. The Court must approve the repayment plan and the budget. A trustee is appointed and will collect the payments from the consumer, pay the creditors, and make sure the consumer lives up to the terms of the repayment plan.

Here is how it works:

Under Chapter 13, the consumer's assets are not sold. Instead, the consumer reorganizes their financial affairs in order to pay back some, or all, money owed to creditors. The Steps in a Chapter 13 are similar to a Chapter 7. However, unlike a Chapter 7, under Chapter 13 a consumer must propose a plan that devotes all disposable income to debt repayment.

There are five steps to a chapter 13:

1. File a petition with the court

2. Automatic Stay

3. 341 Meeting

4. Confirmation

5. Discharge

1. The Bankruptcy Petition

The Petition has four sections.

I. The Petition itself

II. The Schedules

III. The Statement of Financial Affairs

IV. The Reorganization Plan

I. The Petition

The first section is the petition itself. It contains the debtor's name (and aliases), address, the last four digits of the social security number, what section of the code the debtor is filing under, an estimate of the total debt, the number of creditors and total assets, whether the debtor has filed for protection within the last six years and any pending cases of the debtor or a spouse. The Petition is signed, under penalty of purjury, by the Debtor and the Debtor's Attorney (if any).

II. The Schedules

The Schedules are the heart of the petition. This is where all of the specifics are found. The schedules are labeled "A" through "J"

A. Real Estate

B. Personal Property

C. Exemptions

D. Secured Creditors (e.g. vehicle, home, etc.)

E. Priority Crediors (e.g. Taxes, Child Support, etc.)

F. Unsecured Creditors (e.g. credit cards, medical bills, etc.)

G. Executory Contracts (e.g. apartment lease, cell phone, etc.)

H. Codebtors

I. Income

J. Expenses

III. The Statement of Financial Affairs

The statement of financial affairs collects information about your financial situation. This is where you list any judgments against you, repossessions, closed bank accounts, gifts you may have given away, transfers of property, losses due to gampling and other information.

IV. The Reorganization Plan

The Plan is the focus of Chapter 13 reorganization. The Plan spells out, using the informtion detailed in the schedules, how the reorganization is funded, how long the plan will last, and how the funds are allocated. The consumer is obligated to devote all of the household disposable income for at least a three year period. Disposable income is defined as the funds remaining after all reasonable expenses are deducted from the consumer's net income.

2. Automatic Stay

The Automatic Stay arises immediateley upon filing the bankruptcy petition with the court, no other court action is required. The Automatic Stay prevents Creditors from proceeding with any debt collection efforts against the Debtor or property of the estate.

That means that court actions to obtain, or collect on, a judgment for debts must end. All collector activity must end, including creditor calls AND letters.

3. 341 Meeting

Section 341 of the Bankruptcy Code calls for a "Meeting of Creditors." It is the only time that a Debtor must meet with any person other than their attorney. The meeting is conducted by a Standing Trustee. The Trustee "stands in the shoes" of your creditors and reviews your bankruptcy petition in order to determine verify the consumer's household income and examine the listed expenses.

The meeting usually occurs between 20 and 45 days from the date the petition is filed with the court. The Consumer is required to answer questions, under penalty of purjury, concerning the debtor's acts, conduct, property, liabilities, financial condition and any matter that may affect administration of the estate.

The Meeting generally lasts between 15 and 30 minutes and is nothing to fear.

4. Confirmation

The Judge assigned to the case holds a Confirmation Hearing in order to confirm the plan. Once the Judge confirms a Chapter 13 plan all parties are bound by that plan.

5. Discharge

Once a Consumer completes the confirmed plan, all remaining debts are discharged. The discharge relieves the consumer from any liability connected to that discharged debt.

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