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MONEY MATTERS T H E F I R S T O F A T H R E E - PA R T S E R I E S O N T H E B A S I C S O F B A N K R U P T C Y P R O C E D U R E S A N D W H AT I T M E A N S T O D E A L E R S / L I E N H O L D E R S .

Understanding Your Customer’s Chapter 13 Bankruptcy Congress enacted the federal Bankruptcy Code in 1978, and it has been amended several times since. The procedural aspects are governed by bankruptcy rules and the local rules of each bankruptcy (BK) court. There are 90 BK courts – one in every federal judicial district in the country. The court official with the decisionmaking power in each district is a United States bankruptcy judge. Much of BK process is administrative and conducted away from the courthouse. In Chapter 7 and 13 cases, the ones that affect dealers and lien holders, the process is carried out by a trustee. What’s the Difference? The consumer bankruptcies that affect you most will be filed as Chapter 7 or Chapter 13. Chapter 7 – liquidation: A chapter 7 case does not involve the filing of a plan

of repayment, as in chapter 13. Instead, the trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Chapter 13 – wage earner plan: Chapter 13 offers individuals a number of advantages over Chapter 7 liquidation, including an opportunity to save their homes from foreclosure. By filing under Chapter 13, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time, though they must still make all mortgage payments that come due during the Chapter 13 plan on time. Chapter 13 allows individuals to reschedule secured debts, other than a mortgage for their primary residence, and

extend them over the life of the plan. That could lower the payments. Chapter 13 also has a special provision that protects third parties who are liable with the debtor on “consumer debts,” a provision than can protect co-signers. Chapter 13 acts like a consolidation loan under which the individual makes payments to a trustee, who then distributes payments to creditors. Any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 relief as long as the individual’s unsecured debts are less than $360,475 and secured debts are less than $1,081. A corporation or partnership cannot be a Chapter 13 debtor. How Chapter 13 Works A Chapter 13 case begins by filing a petition with the bankruptcy court

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TNIADA Dealer Connect Dec 2012  

Tennessee Dealer Connect for December 2012