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Debtor does not have to pay creditors in Chapter 13

Florida residents with overwhelming financial obligations may think that Chapter 7 is the only way that they can get out of debt. In reality, Chapter 7 liquidation bankruptcy is just one option for those who have more debt than they can afford to repay. Chapter 13 bankruptcy can allow a debtor to repay some or all of the owed obligations without a need for the trustee to sell off non-exempt assets.

A person must have regular income in order to obtain debt relief under Chapter 13. During the Chapter 13 bankruptcy process, a debtor develops a plan to pay back a portion of the obligations over a period of three to five years. There is no minimum repayment amount other than the requirement that creditors get at least as much as they would have under Chapter 7. Chapter 13 also allows the debtor to repay legal fees over the three-to-five year period.

In May, a bankruptcy court ruled that a debtor could develop a Chapter 13 bankruptcy plan that did not include any plans for repaying creditors. The debtor’s plan only provided for her lawyer’s fees, the Chapter 13 trustee’s commission and the bankruptcy filing fee. The woman could not file for Chapter 7 bankruptcy because she had no income to pay for her legal fees, and obtaining more debt to file for bankruptcy could have made her ineligible for debt relief.

As long as a person has regular income, Chapter 13 bankruptcy may be an option that is available. As lawyers will tell their clients, the eligibility requirements are strict, and the terms of the plan must be faithfully complied with in order to prevent the case from being converted into a Chapter 7 liquidation.

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