How to be successful in a Chapter 13 bankruptcy

A well-crafted plan can help avoid a dismissal of your bankruptcy

A Chapter 13 bankruptcy is a challenging process. Unlike Chapter 7, which is often completed in six months, a Chapter 13 case usually lasts between three and five years. While that may seem like a very long time, with a Chapter 13, there is little room for error.

When you file a Chapter 13, you will disclose all of your income and debts on the required schedules. In addition, you and your bankruptcy attorney will draw up what is known as a Chapter 13 plan. The plan is the centerpiece of the process, and creating a viable plan is absolutely essential for your success.

It's all in the plan

The plan will control all of your spending for the term of the plan and functions much like a very strict budget. In addition, the trustee will examine the plan you have filed, and if they find something wrong, such as not devoting all of your "disposable income" for creditor payments, they may object to the plan confirmation.

During your payment period, you will submit monthly payments to the Chapter 13 Trustee. The trustee will then pay your creditors from these funds.

Debts with secured interests, such as a home or car, must be made in full. Unsecured debts only need to be paid to the extent of your disposable income, which is what remains after priority payments, secured debts, and your necessary living expenses are deducted from your income.

It is vitally important during this period that you make all of your plan payments to the trustee and that they are made on time. This is where many debtors run into problems during a Chapter 13. They perhaps believe that they can miss a payment.

If payments are missed, the trustee will likely move to dismiss your bankruptcy. There are dangers for a debtor if the bankruptcy is dismissed. Foremost is lifting of the automatic stay.

With the lifting of the automatic stay, all collection activity may begin and the demand letters and collection phone calls will resume. If you own a vehicle and you are behind on the payments of that vehicle, with the dismissal, your lender is again permitted to repossess the vehicle.

Feasibility is the key

When developing your Chapter 13 plan, you need to carefully examine all of your sources of income and your expenditures. You need to create a plan where all the numbers add up and that you can sustain for the necessary three to five years.

You not only must live within the constraints of the Chapter 13 plan, but you must be careful to not need to obtain additional debt, as the Trustee must approve any increase in your debt and they will very closely examine your plan to ensure that any additional debt does not jeopardize the viability of that plan.

The attorneys and staff at Rothschild & Ausbrooks, PLLC can assist with the process of developing a feasible Chapter 13 plan, that if properly implemented will allow you to successfully complete your bankruptcy.