Unlike chapter 7, only individuals (including individuals with sole proprietor businesses) are eligible to file chapter 13. Here, a debtor can repay all or a portion of their debts. Typically, a chapter 13 case lasts between three and five years. The trade-off is that more types of debt are dischargeable in a chapter 13 case and a debtor who is at risk of losing their home through foreclosure may be able to cure arrearages in chapter 13, allowing them to keep their home. Moreover, as long as a certain threshold amount is paid into the plan, a debtor frequently has the ability to keep all of his assets, whether exempt or not. The basic process in a chapter 13 is this:
1. Upon the filing of the case, the automatic stay goes into effect. This puts a stop to any efforts by creditors to collect the debts you owe, including phone calls, letters, garnishments, liens, and other actions to enforce the obligation. (Note: There are many exceptions to the automatic stay, so be sure to check with qualified counsel.)
2. The debtor creates a plan of debt repayment that may repay none, some, or all of their unsecured debt, and may utilize wages, other income and asset sale proceeds to pay the debt.
3. The debtor seeks approval of the plan by the bankruptcy court, creditors, and a chapter 13 trustee (there is only one in Wichita).
4. The debtor makes payments to the chapter 13 trustee as stated in the plan.
5. The chapter 13 trustee distributes the payments to creditors according to the terms of the plan.
6. At the conclusion of all plan payments, the debtor receives a discharge of all dischargeable debt and exits bankruptcy. (Note: Many debts may not be dischargeable; only qualified counsel can advise regarding this issue.)
Many individuals considering bankruptcy believe that it is possible to exclude property or creditors of their own choosing from the bankruptcy case. This is absolutely incorrect. The documents that a debtor files with the bankruptcy court are signed under penalty of perjury. Excluding anything or failing to fully disclose the requested information can be grounds for denying a debtor relief. More importantly, false information filed with the bankruptcy court can lead to federal criminal prosecution. Very recently a debtor in Wichita was sentenced to three years in federal prison for bankruptcy crimes—these are very serious matters.
These comments are just generic anecdotes and are not offered to advise any particular course of action. The only advice offered here is to disclose everything to your lawyer and seek counsel before you choose to do anything. He or she can help you make the most of your situation, but only if they know all of the relevant facts.
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