Under Chapter 13, a debtor is required to file a plan of reorganization. In the debtor’s plan, the debtor tells the creditors and the Chapter 13 trustee exactly what they are going to do with the debt and the collateral. For example, let’s say a debtor files a Chapter 13 and has a vehicle worth $15,000 with no debt on it. Since there is no debt, there is no secured creditor to worry about. However, if the debtor wants to keep the vehicle and protect the non-exempt portion of the value of the vehicle, the debtor must worry about being fair with the unsecured, non-priority creditors.
Think of this scenario like a teeter-totter on a playground. On the one side, you have the debtor with non-exempt equity in the amount of $15,000 and, on the other side, you have the unsecured creditors who must receive $15,000 through the life of the plan so it can be confirmed. The amount of money the debtor must pay to the unsecured creditors must be equal to or greater than the amount of non-exempt equity in the vehicle. Otherwise, the unsecured creditors would not be treated fairly.
Paying the Secured Creditor
Usually, when a person files Chapter 13, they owe money on their vehicle. When a debtor owes money to a creditor on a motor vehicle, a secured creditor will need to be paid. The debtor’s Chapter 13 plan will set forth exactly how the debtor is going to deal with the creditor. It may say that the debtor is going to continue making payments to the creditor or it may say that the debtor is going to surrender the vehicle to the creditor. The Chapter 13 plan may say that the debtor is going to attempt to modify the payments to the creditor in some fashion, as the bankruptcy code allows for the debtor to modify the payments under certain circumstances.
If the creditor does not like how they are being treated under the Chapter 13 plan, they can object to it. When a creditor objects to treatment under the Chapter 13 plan, the court will usually hold a hearing to hear the arguments of each side and determine which side is correct under the bankruptcy code.
Legal Help for Chapter 13 Bankruptcy
If you are thinking about filing Chapter 13 bankruptcy, you will likely need an experienced bankruptcy attorney to help guide you through the process. Chapter 13 is an extremely complex process and should not be taken lightly. Accordingly, please do your homework before filing a Chapter 13 with just any bankruptcy attorney. Many do not handle Chapter 13 cases correctly, which could leave your money on the table.
If you would like a complimentary strategy session to see if Chapter 13 is right for you, please feel free to call us at (800) 391-4337 and set up a consultation with one of our experienced Chapter 13 bankruptcy attorneys. We will answer all your questions and perform a comprehensive financial overview to see if a Chapter 13 bankruptcy is correct or if there are other options available to you to help you on your financial journey. We can also be reached via our online contact form.