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What are my obligations under Chapter 13?

Mississippi debtors may decide that filing for Chapter 13 bankruptcy is the best way for them to get a fresh financial start. Chapter 13 bankruptcy, or reorganization bankruptcy, allows debtors to adhere to a structured repayment plan to pay off their debts. This is different from Chapter 7 bankruptcy, or liquidation bankruptcy, which allows debtors to have their debts forgiven in exchange for allowing a trustee to liquidate all their non-exempt property.

When filing for Chapter 13, debtors must pay a filing fee and an administrative fee, submit a credit-counseling certificate of completion, a copy of their most recent tax return, proof of filing for taxes for the previous four years and a Chapter 13 repayment plan. Debtors whose average income six months before filing is equal to or less than their state's median income may be allowed to repay creditors in a three-year repayment plan. Those whose income is greater than the state's median income must adhere to a five-year repayment plan.

Within 30 days of filing for Chapter 13, debtors must begin making manageable payments according to their repayment plan. While the bankruptcy court decides whether to confirm or deny the plan, a trustee will hold the payments. If denied, the money will be returned to the debtor and if confirmed, the money will be distributed to creditors as specified in the plan.

Debtors' payments are generally prioritized as follows: administrative fees, child support and alimony, wages owed to employees, non-dischargeable tax debt and contributions to employee benefit plans. Debtors must also pay overdue payments for life of the plan on mortgages, home equity loans, car, boat and motorcycle loans and personal loans. Liens (tax, judicial, statutory, promissory notes) must be paid in full. Unsecured creditors, such as credit card bills, medical bills, union dues, health club dues and back rent, must be paid for the life of the plan through the debtor's disposable income.

Under Chapter 13, debtors must also consult their trustee before incurring new debt, file their taxes and file annual income and expense reports. Debtors may request a modification to their repayment plan after it has been confirmed in several circumstances. A future post will discuss these reasons for modification as well as the consequences of failing to comply with Chapter 13 obligations.

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