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The Reality of Chapter 13: A Case Study

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When the nightmare of a baby born with severe health issues, the last thing a parent thinks of is the cost of an extended stay in a neonatal unit at a leading hospital. The idea of losing a child is not even imaginable and the process moves along as though there is not a money problem. It has to be that way.

Parents breathe a sigh of relief when their child is sent home and they begin to live their lives with a baby they thought they might lose. Mother and fathers return to work and life goes on. Then the bills begin to arrive and the reality of what has happened begins to impact their lives.

Case Study:

In the case of the Smith family, the family had been blessed with five children, one grown and the other four still at home. The family unit was very sound, both parents had jobs that paid well and the family was insured. They were not needy nor were they foolish. Up until the time the baby was born, they were managing to live a normal life.

Their beautiful baby was born full term in a normal delivery. The crisis began when the baby displayed a condition they called “brittle lung”. The baby was transported to a bigger hospital that had a well-known neonatal unit and the mother and father were give rooms near the unit. The baby did not respond well unless his mother sat at his side and held his hand. After many long days and nights the baby was released into their care.

Several weeks later, the hospital bill arrived and the insurance company contributed the amount required of them. The hospital then began an effort to collect what was due to them. According to the family, they were told that the family’s total income did not allow the hospital to negotiate a payment plan. The Smiths said that if they did as the hospital asked, they would have lost their home.

In the saga that became their life, they began looking into what they could do, visited a lawyer, sat through hearings and tried to absorb what they needed to do. It turned out Chapter 13 was their only choice.

In the Chapter 13 law there are requirement that need to be met. According to the website the guide are:


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 $1,081,400. 11 U.S.C. § 109(e). These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation or partnership may not be a chapter 13 debtor. Id.


It seems pretty straightforward. However, when visiting with the family, the family said the instruction from the court were not a simple as that. They were told to discontinue payment of their debts until the repayment plan was in place. Up until that time they were paying all their bills accept for the one they owned the hospital.

But there was more. Because the parents had co-signed a college loan they were repaying, the parent’s credit rating was also affected. The family said that the courts had assured them this would not happen. The reality was nothing could stop the credit company process even though the law specifically protects co-signers in a situation like this:


“Chapter 13 also has a special provision that protects third parties who are liable with the debtor on “consumer debts.” This provision may protect co­signers. Finally, chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under chapter 13 protection.”


When the parents were ready to downsize their home, they were surprised to find the flaw in their credit and their loan company was very reluctant to lend them money. When the company that held the loan was asked why they did not contact the parents they sited that part of the Chapter 13 law that said:


“As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even make telephone calls demanding payments.”


In spite of the facts that the Chapter 13 law had protection for the parents, the lenders would not budge on the credit flaw and the parents are in the process of resolving the matter.


The parents did get their loan, the family is currently living with the Chapter 13 ruling and life goes on. However, according to the parents, the idea that their credit is affects is more than they want to endure. They will work to have that removed from a credit history that is perfect in every other way.

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