The U.S. Bankruptcy Code was revamped in 2005 with the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). The BAPCPA retained two major consumer provisions of the Bankruptcy Code, i.e., Chapter 7 and Chapter 13, with some significant changes.
Chapter 7 deals with liquidations and is normally a short proceeding which produces a discharge in exchange for liquidation of a debtor’s non-exempt assets. Chapter 13 is generally used to pay creditors under a court supervised plan. Chapter 13 proceeding is an extensive proceeding that can last as long as five years.
In a bankruptcy proceeding, a debtor makes payments in accordance with the plan and receives a discharge at the end of the plan. When proposing a Chapter 13 or chapter 7 Plan to the court, to the creditors and to the Chapter 13 Trustee there are certain guidelines to be kept in mind. All debts and money owed by the debtor including monthly payment amount of the debtor and all debts that will be paid directly by the debtor should be provided in the bankruptcy petition. IRS claims, real estate property taxes, and other government dues should also be properly listed in the bankruptcy petition.
The most important consideration to be kept in mind while drafting a bankruptcy plan is that, the plan should state how the money flows to the various classes of creditors. In drafting a bankruptcy plan, it is the job of the debtor’s attorney to manage the flow of money to:
- keep both the secured and unsecured creditors happy;
- make sure their own fees get paid; and
- try not to let any money flow to the general unsecured creditors until the secured creditors have been paid.