A Chapter 13 filing is intended to adjust the debt payments of an individual or small business with dependable and regular income. While Chapter 7 is preferred by most clients, Chapter 13 bankruptcy offers many advantages in bankruptcy protection. Some of these include: stopping collections, suits or garnishments; prohibiting any additional penalties or interest charges; requiring creditors to file proofs of claim; discharging certain debts that can not be discharged in Chapter 7; giving priority to child support or tax debt by allowing these to be paid in full before any payment is made to your other unsecured creditors; and requiring payments to non-priority, unsecured creditors to be no more than what your disposable income allows. The adjustment of your debt and the monthly repayment schedule are set out in a Chapter 13 Plan which your Wyoming bankruptcy attorney prepares and files with the Wyoming Bankruptcy Court based on the amount of your disposable income and the types and amounts of debt to be repaid. Typically, only a portion of the unsecured debt is repaid, while “priority” debt, such as child support or taxes, is repaid in full. The monthly payment must be affordable based on your income and current living expenses. No interest or penalties will be added to your debt if your Wyoming bankruptcy attorney files your bankruptcy petition under Chapter 13. The repayment period under the plan may be as short as 36 months or as long as 60 months. After your last payment required by your Chapter 13 Plan, you will be discharged of your debt, even if you have paid less than the full amount owed.
Even if not required, you may choose to file under Chapter 13 in the following situations:
You may owe a debt which cannot be discharged in a Chapter 7 case, but which can be discharged in Chapter 13. The type of debt that may be discharged is broader in Chapter 13. For instance, several types of tax debt are non-dischargeable in Chapter 7 and dischargeable in Chapter 13. Student loans are non-dischargeable in Chapters 7 and 13 and are not entitled to a priority in Chapter 13.
Child support and non-dischargeable taxes are entitled to be paid in full in Chapter 13 before any payments are made to other creditors. If you owe sizable tax or child support, it will usually be paid in full with little or no money being paid to the other creditors. The tax debt does not accrue interest or penalties while in Chapter 13.
Marital debt that you agreed to pay in your divorce is non-dischargeable in Chapter 7, but is dischargeable in Chapter 13. Marital debt is not entitled to a priority in Chapter 13.
If you owe a debt that cannot be discharged in either Chapter 7 or 13, it can be better managed and often be completely paid off in Chapter 13. No interest will accrue on the IRS debt after the date the petition is filed. The IRS must accept the payment schedule in the confirmed Chapter 13 Plan.
If you are behind on your house payments and are being threatened with foreclosure, then Chapter 13 will stop the foreclosure and provide you with the extra time needed to cure or catch up on your past due payments, even without the creditor’s consent. When you have a secured loan (i.e., auto, furniture, etc.) which is past due, often the creditor will not agree to reaffirm the debt in Chapter 7. However, in Chapter 13, the past due payments may be cured.