When A Consumer Proposes To Repay Unsecured Creditors Under Chapter 13 Of The Bankruptcy Code

The Bankruptcy Code has two chapters available to help consumers: Chapter 7 and Chapter 13.

In Chapter 7 a consumer can keep his or her home or vehicle in most circumstances after filing bankruptcy if the payments can be made as they come due. These are what are known as secured debts and some examples are mortgages, car loans, and boat loans. In these loans the security or collateral for the loan is the house, car, boat or whatever property secured the loan. Whether a consumer can file Chapter 7 depends upon his or her income. If the consumer’s monthly income is too high according to the bankruptcy guidelines the consumer must file under Chapter 13. 

Chapter 7 also offers relief to consumers for unsecured debts such as credit card balances, hospital bills, and deficiencies from vehicle repossessions and home foreclosures. A consumer is not required, generally, to repay an unsecured debt, but to qualify for filing a Chapter 7 the income must be low enough to fall within the bankruptcy income guidelines. For example an individual seeking bankruptcy relief in the State of New Hampshire as of November 15, 2013 and earning more than $52,588 yearly may not qualify for filing a Chapter 7.

In Chapter 13, you, the consumer, propose the amount of monthly payments to be made to the unsecured creditors through a Chapter 13 Plan. Not only can you propose the amount of your Chapter 13 monthly plan payments that you will be paying but you can also propose the time frame that you will be making those payments. Under Chapter 13 you can elect to make payments for a minimum of 3 years, but you can also propose to make payments up to 5 years. The consumer makes his or her Chapter 13 plan payments to a Chapter 13 Bankruptcy Trustee and he in turn pays the creditors. In Bankruptcy Court, a Trustee is a lawyer appointed by the Court to administer and oversee the proposed plan. The Trustee makes sure that all parties comply with the bankruptcy rules and that the Chapter 13 Plan will actually repay the creditors as proposed.

In re Richall, 2012 BNH 003 these Chapter 13 Plan issues were addressed by the Bankruptcy Judge for New Hampshire when a husband and wife filed a Chapter 13 and proposed to re-pay their unsecured creditors in full through their proposed Chapter 13 Plan. In this particular case, they proposed to pay their unsecured creditors in full over a 5 year period, but because they did not use all of their disposable income (income which is left over after all necessary household expenses have been paid) the Chapter 13 Trustee objected to the plan arguing that because the consumers had the ability to make higher payments than what was proposed in the plan, the time frame of 5 years was too long and, therefore, should be reduced so that the unsecured creditors could be re-paid more quickly.

The Court, ruling in favor of the consumers, explained that since the unsecured creditors were to be paid in full over the course of 5 years, the consumers could make payments at a lower amount than what the trustee was demanding.

This ruling is a good example of how the Bankruptcy Court helps consumers in Chapter 13 cases determine how much to pay each month and over what time period when the consumer makes a good faith effort to pay his or her unsecured creditors.

You may read recent opinions issued by the NH Bankruptcy Court by visiting US Bankruptcy Court-NH and clicking onto “New Opinions”.

Seaton & Lohr has been representing clients in Chapter 7 and Chapter 13 cases in both New Hampshire and Maine since 1989. If you require relief from your debts, please contact us at (603) 743-3302 for a consultation. We can assist you in keeping your home or automobile, if appropriate. We can stop harassing creditor calls, and help you through a difficult time.

Related reading: The History of Bankruptcy