Most Kentuckians understand that a bankruptcy proceeding can protect a person from the claims of creditors. A Chapter 13 bankruptcy proceeding can provide a breathing space for reorganizing debts and allowing them to be paid over time. The exact mechanics for achieving this end are not so well known.
One of the most useful devices in seeking a declaration of bankruptcy is the payment plan approved by the court. These plans are usually called wage earner's plans because only persons who have a regular income can use them.
In general, a wage earner plan takes into account all of a person's current obligations and income and, in cooperation with creditors and the supervision of the court, works out a plan to repay these debts over a period of three years. The payments will be spread out over three to five years, depending upon the debtor's income.
The filing of the Chapter 13 petition immediately stops all collection proceedings, including foreclosures and wage garnishments. The debtor must file complete schedules of assets and liabilities, current income and expenses and executory contracts and unexpired leases, as well as a general statement of financial affairs. The debtor must also provide his or her most recent tax return.
The debtor must file a repayment plan no later than 14 days after the bankruptcy petition has been filed. After creditors are notified of the proceeding, the court will schedule a hearing to decide whether the payment plan should be confirmed.
After the repayment plan is confirmed, the debtor has the principal responsibility for making it work. The debtor must make all payments required by the plan. Generally, these payments are made to the trustee who then distributes the money to creditors. Once the debtor has made all payments required by the plan, all debts will be discharged.
Recent amendments to the bankruptcy code have made Chapter 13 proceedings very complex. Anyone contemplating filing a Chapter 13 petition should consult competent legal counsel for advice on whether and how to proceed.
Source: USCourts.gov, "Chapter 13 - Bankruptcy Basics," accessed on March 18, 2017