Michigan Chapter 13
NOTE: This information is offered to provide general information only. It is not intended as legal advice. To find out about your particular situation, please contact us for a FREE office consultation. Call 734-722-2999 today.
What is Chapter 13 and how does it work?
Chapter 13 is that part (or chapter) of the Bankruptcy Code under which a person may repay all or a portion of his/her debts under the supervision and protection of the bankruptcy court. The Bankruptcy Code is that portion of the federal law that deals with bankruptcy. A person who files under Chapter 13 is called a debtor. In a Chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. The plan must be approved by the court. If the court approves the debtor’s plan, most creditors will be prohibited from collecting their claims from the debtor during the course of the case. The debtor must make regular payments to a person called the Chapter 13 trustee, who collects the money paid by the debtor and disburses it to creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his/her dischargeable debts.
How does Chapter 13 differ from Chapter 7 for a debtor?
The basic difference between Chapter 7 and Chapter 13 is that under Chapter 7 the debtor’s nonexempt property (if any exists) is liquidated (sold and turned into cash) to pay as much as possible of the debtor’s debts. While under Chapter 13, a portion of the debtor’s future income is used to pay as much of the debtor’s debts as is feasible considering the debtor’s circumstances. As a practical matter, under Chapter 7 the debtor loses all or most of his or her nonexempt property and receives a Chapter 7 discharge, which releases the debtor from liability for most debts. Under Chapter 13, the debtor usually retains his or her nonexempt property and must pay off as much of his or her debts as the court deems feasible. A Chapter 13 case normally lasts much longer than a Chapter 7 case and requires payments by the debtor.
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