Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows individuals, as well as debtors engaged in business, to reorganize their debts. While Chapter 13 has historically been referred to as a “wage earner’s” bankruptcy, any individual with sufficient regular income from any source may qualify for a Chapter 13 filing. Self-employed individuals may also qualify for Chapter 13 relief, and may continue to operate their businesses in Chapter 13. Incorporated entities, however, are not eligible for Chapter 13 relief.

There are certain debt limits that apply to Chapter 13, which change periodically. At this writing, the Chapter 13 debt limit is $394,725 for unsecured debt, and a $1,184,200 secured debt limit. Examples of unsecured debt are credit cards, personal loans, repossession deficiencies, hospital bills, and certain old taxes. A debt is secured if a creditor has taken a security interest in collateral that you own, such as your home or your car.

A Chapter 13 bankruptcy’s term lasts between 3-5 years, and is a long-term undertaking as compared to Chapter 7. A bankruptcy discharge releases the debtor from personal obligation on their debts.

Another feature that distinguishes Chapter 13 from Chapter 7 is the requirement for the debtor to make monthly plan payments. These Chapter 13 plan payments, otherwise known as “Trustee payments”, are based on a Chapter 13 plan of reorganization that debtor’s counsel prepares, based on each client’s unique circumstances and objectives. The debtor sends his plan payments monthly to the Chapter 13 Trustee. A Trustee is responsible for administering bankruptcy cases, and one of his functions is to forward monies received from the debtor to the debtor’s creditors that are scheduled to receive payments under the Chapter 13 plan and, and which timely file a Proof of Claim with the District of Delaware Bankruptcy Court.

The Automatic Stay, which provides immediate protection from and stops all creditor action in most cases, is imposed immediately upon the filing of any bankruptcy case. I say “in most cases”, because certain repeat filers may not be eligible to receive the benefit of the automatic stay upon filing bankruptcy (e.g., those who have had two or more bankruptcy cases dismissed within one year of the case filing). Other repeat filers may need to timely file the appropriate motion to extend the Automatic Stay past 30 days after the bankruptcy filing.

Chapter 13 is very complex, and requires competent and experienced bankruptcy counsel to navigate through the numerous legal requirements. In my 16 years of practicing bankruptcy law, I have never seen any individual successfully prosecute a Chapter 13 case on their own. In fact, each month I encounter individuals who unsuccessfully attempt to represent themselves (pro-se), and wind up in Court before the Judge or worse, as a result of the mess they have created by attempting to file their own cases.

What Can Delaware Chapter 13 Bankruptcy Do for You?

  1. Stops the foreclosure/sheriff sale of your home.
  2. Stops the repossession of your car.
  3. Reduces the payment due for undervalued cars which were purchased more than 910 days prior to the date of the bankruptcy filing.
  4. Stops creditor calls, wage garnishments, tax seizures, or other creditor action.
  5. Strips-off fully-unsecured mortgages and liens, and possibly reduce (or cram-down) under-secured mortgages on rental properties.
  6. Helps eliminate old tax debt, and/or helps you to get back on track with Federal, State and Local taxes, and homeowner association/condominium dues.
  7. Consolidates your bills.
  8. Allows you to repay some of your debt.
  9. Provides bankruptcy protection for individuals who may not be eligible for Chapter 7 bankruptcy relief.
  10. Discharge business debt for which you are personally liable (e.g., as a Direct signatory, or for which you signed a personal guarantee).
  11. Protects co-signors, through a Chapter 13 plan that prevents creditor actions against co-signors.
  12. Helps you to retain an apartment for which you have fallen behind in rent but not yet evicted, but can afford the ongoing rental payments going forward.

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