A debtor applying for a Chapter 13 bankruptcy must file a repayment plan along with the petition. The repayment plan will lay down the structure of payments that has to be made to the creditors. The debtor can start making payments as per the repayment plan to his/her attorney immediately after filing. This will help to create a positive impression about the debtor.
After filing the Chapter 13 petition and before confirmation, the debtor will be summoned to attend the creditor’s meeting. All the creditors or their representatives will be present in the meeting. After assessing the debtor’s financial situation, the creditors will make recommendations about confirmation of bankruptcy.
Once the bankruptcy is confirmed, the debtor should make regular payments to the trustee appointed by the U.S. trustee services. The trustee will direct those payments to the creditors. The debtor can opt to pay the trustee directly from his/her paycheck; or make personal payments. In any case, it is very important that the debtor does not break the payment arrangement. If the debtor fails to make regular payments as per the repayment plan, the Court has the right to dismiss the case or convert it to a liquidation case under Chapter 7.
Once the repayment plan is completed successfully, the court will waive most of the remaining debts and the Debtor will be able to get back to normal life without fearing collection calls, wage garnishment or any other legal action. The debtor will be discharged of all obligations except for any long term payments such as home mortgages, child support and alimony, government funded educational loans, any debt arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, debts for restitution or a criminal fine included in a sentence on the debtor’s conviction of a crime, and certain taxes.
If at all the debtor is unable to make regular payments according to the plan, s/he can request the court for a hardship discharge. The court may grant a hardship discharge if it is proved beyond doubt that the reason for failure to make regular payments was beyond the debtor’s direct control. Conversely, a hardship discharge may be granted only after the creditors have received at least as much amount as they would have received under a chapter 7 bankruptcy case, and when modification of the plan was not possible. Serious injury or disease that affected the debtor’s capacity for employment and earn regular income can be considered a sufficient reason for granting hardship discharge.