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In a Chapter 13 bankruptcy, the debtor pays off some or all of his or her debt through a payment plan over the course of either 3 or 5 years. This is different from a Chapter 7 bankruptcy, in which the debtor’s assets are collected and used to pay creditors, while any remaining debt is immediately discharged. For more information about the differences between Chapter 13 bankruptcies and Chapter 7 bankruptcies, eligibility requirements for Chapter 13 bankruptcies, and the situations in which Chapter 13 bankruptcies are preferable to Chapter 7 bankruptcies, check out our article: When Does it Make Sense to File a Chapter 13 Bankruptcy rather than a Chapter 7 Bankruptcy.
Step 1 - Credit Counseling: Before filing a Chapter 13 bankruptcy, you are required to take a court-approved credit counseling class. You can find a list of court-approved credit counseling agencies here. These classes can be taken online. Once you have completed your credit counseling class, you will receive a certificate of completion. Your certificate of completion must be filed along with your Chapter 13 bankruptcy petition.
Step 2 - Filing Your Chapter 13 Petition and Schedules: A Chapter 13 bankruptcy case is initiated by filing your Chapter 13 bankruptcy petition with the appropriate court. The Northern District of Illinois Bankruptcy Court serves the Chicagoland area. Your petition will be accompanied by “schedules” that detail your assets, liabilities, income and expenses. There are several additional documents that must be filed along with the petition, including a list of all of your creditors. The bankruptcy clerk will mail notice to all of your creditors that the bankruptcy case has been filed. As soon as the case is filed, an “automatic stay” on collection actions will go into effect. This means that creditors are prohibited from taking any collection actions against you while your case is pending.
Step 3 - Filing Your Repayment Plan: Within 14 days of filing your Chapter 13 petition, you must file a repayment plan that details how you plan to repay some or all of your debts over the next 3 years or 5 years (the duration of the plan depends on your income). According to the plan, you will pay the Chapter 13 trustee a fixed sum on a monthly or biweekly basis. The trustee will then distribute the payments to your creditors. (The Chapter 13 trustee is a lawyer appointed to oversee your case, review your plan, and ensure that the bankruptcy is being filed and conducted in good faith and that the creditors are being treated fairly.) You are required to start making payments to the trustee within 30 days of filing your petition, even if your repayment plan has not yet been approved.
Step 4 - Meeting of the Creditors: When you file your petition, you and your creditors will receive notice of the date and location of the “Meeting of Creditors.” This is a meeting between the debtor and the trustee, which creditors may attend. The Meeting of Creditors will be held within 60 days of the date the petition was filed. At the meeting, the debtor will answer questions from the trustee under oath regarding his or her finances and the terms of the repayment plan. Tax returns and pay stubs must be provided to the trustee prior to the meeting.
Step 5 - Confirmation Hearing: Within 45 days of the meeting of the creditors, a hearing will be held before the court to determine whether to confirm the repayment plan. Creditors will have the opportunity to object to the plan. If the trustee recommends the plan and no creditors object, the judge may confirm the plan without calling the case for a hearing. If the court refuses to confirm the repayment plan, the debtor has the option of filing a modified plan. The debtor may also convert the case to a Chapter 7.
Step 6 - Discharge: The debtor will continue to make payments under the plan to the trustee until the plan has run its course. Before receiving a discharge, the debtor must complete a financial management course, which can be taken online. The debtor being current on all domestic support obligations is another prerequisite to discharge. Any debts covered by the plan will be discharged, even if the plan did not provide for them to be paid in full.