Compared to Chapter 7, Chapter 13 is the kinder bankruptcy. You don't lose your assets; the trustee doesn't seize them and sell them to pay off your creditors, as he does when you file for Chapter 7. Instead, you fund a repayment plan with your extra income each month, which is what you have left over after paying your necessary living expenses. Chapter 13 requires that you have a regular source of income to provide for this, but you can generally save your home, automobiles and other property that acts as collateral for loans.
Federal law requires that when you file for bankruptcy, you first complete a credit counseling course. You must do this during the six months immediately before you file your Chapter 13 petition. When you've completed the course, you'll receive a certificate, which you must then file with the court along with your bankruptcy petition. You must also complete a budget counseling class at the end of your Chapter 13 repayment plan.
Creating Your Plan
You must submit a plan to the court detailing how you intend to repay your debts, typically within two weeks of filing your bankruptcy petition. The details of this plan depend a great deal on your available income – how much is left over each month after paying your living expenses and whether you earn more or less than your state's median income for a family of your size. Your plan will be either three or five years long, depending on whether your income is above or below the median. If it's below the median, you can complete your plan in three years if the court agrees to this. Otherwise, you will likely repay your creditors over five years.
Meeting of Creditors
After you've completed and submitted your repayment plan, the court will schedule a meeting of your creditors within 21 to 50 days. This meeting is commonly called a 341 hearing, named for the section of the bankruptcy code that provides for it. The judge can't attend this hearing because the law prohibits him from hearing any information that may bias him in future proceedings. Your creditors can attend if they choose to; your appearance is mandatory. This is usually a quick proceeding. The trustee assigned to your case will ask you a few questions to ensure that everything you've stated in your petition is accurate and your filing is complete.
Your bankruptcy case will also be scheduled for a confirmation hearing, which is a little more involved. Confirmation hearings typically take place about 30 to 45 days after the meeting of creditors. The judge will review the repayment plan you've proposed and some of your creditors – or their attorneys – might attend. The trustee will be there to recommend either approval or rejection of your plan, and your creditors can object to it as well. Ultimately, the judge will make a decision as to whether to approve or reject it.
Completing Your Plan
If your plan is confirmed and approved, you must begin making monthly payments to your trustee who will then pay your creditors. You may have to make your first payment even before your confirmation hearing, depending on when the hearing is scheduled – your first payment is due three to four weeks after you file your petition. If your plan has not been confirmed before the first payment, your trustee will hold onto the money until it is. At the end of your repayment plan, if any of your unsecured debts have not been paid off completely, the balances will be discharged and you'll no longer owe them.