Little repayment required in Chapter 13

20 Nov Little repayment required in Chapter 13

Clients often resist Chapter 13 when I first raise the idea, as they assume, wrongly, that as a “repayment plan”, it must repay all their debt. Chapter 13 provides for a stream of payments toward the consumer’s debt, but most often pays creditors only a tiny fraction of their claim.

Prior to the 2005 amendments to the bankruptcy law, courts were split on whether debtors had to pay some particular fraction of their debt to obtain confirmation of a Chapter 13 plan. That whole issue seems to have been eliminated by the framework of the new law which measures what the debtor has to pay in Chapter 13 by looking at their income in the past six months.

Thus, the law that was supposed to squeeze the last dollar from debtors has in effect blessed plans that provide little or nothing to unsecured creditors.

Now, if a debtor has non exempt assets that would have generated a pot of money in a hypothetical Chapter 7 case, then what the debtor pays into the plan is determined by the size of the pot that would have been created in a Chapter 7.

Chapter 13 has many advantages for the consumer and the myth that full repayment is necessary is just that: a bankruptcy myth. Read more bankruptcy myths.

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.
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