Once a Chapter 13 plan is confirmed by the bankruptcy court, a contract is created between the debtor and his or her creditors. The debtor is responsible for making the payments called for under the confirmation plan. Payments are made to the Trustee, who forwards the money to the creditors. The impact for debtors is that debtors must learn to live under a specific budget as set forth under the plan with limited disposable income. In fact, the debtor is forbidden to undertake additional debt with express permission of the Trustee and without objection of the creditors.
Payments can be made directly or through a payroll deduction. If payments are not made under the plan, the court can very quickly dismiss the bankruptcy case and the debtor is left without having had the remainder of the debt discharged. The debtor's case can also be discharged with the debtor fails to meet other pre or post filing domestic support obligations or does not file or pay state or federal taxes. Finally, a debtor's case may also be converted to a Chapter 7 under certain circumstances.
Most clients report that living on a budget set forth by the court has positive impacts. It prevents the debtor from getting into new debt which the debtor may not be able to afford. Others who have an increase in salary during the period may be able to accelerate payments and get out of the plan earlier. On the other hand, those who lose a job or have a downward change in pay may have their payments reduced, receive a Hardship Discharge or be eligible for a Chapter 7 when they were not otherwise eligible when the petition was filed.
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