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Generally, chapter 13 is preferred by debtors who have a
valuable asset, such as a home, that is not completely
covered
by exemptions and that they wish to keep. This
is possible because under Chapter 13 a debtor proposes a
plan to repay creditors over a three to five year
period during which the debtor can make up overdue payments
on any assets and pay into the plan the equivalent value
of any assets not covered by exemptions. Since the debtors
plan will require regular monthly or biweekly payments, Chapter
13 is usually only appropriate for an
individual debtor who has a regular source of income.
At a confirmation hearing, the court
either
approves or disapproves
the plan,
depending on
whether the plan meets the Bankruptcy
Code’s requirements for confirmation. Chapter 13 is very different from
chapter 7, since the chapter 13 debtor usually remains in possession of the property
of the estate and makes payments to creditors, through the trustee, based on
the debtor’s anticipated income over the life of the plan. Unlike chapter
7, the debtor does not receive an immediate discharge of debts. The debtor must
complete the payments required under the plan before the discharge is received.
The debtor is protected from lawsuits, garnishments, and other creditor action
while the plan is in effect. The discharge is also considerably broader (i.e.,
more debts are eliminated) under chapter 13 than the discharge under chapter
7.
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