Introduction to Chapter 13
A chapter 13 bankruptcy is also called a wage earner's plan. It enables you, if you qualify, and if you have regular income to develop a plan to repay all or part of your debts. You do this by proposing a repayment plan wherein you make installments over three to five years. If your current monthly income is greater than the court determined amount the plan payment will be for five years, otherwise 3. During this time the law prohibits creditors from starting or continuing collection efforts.
A chapter 13 case begins by filing a Petition with the bankruptcy court. In addition to the Petition, there must also be filed a number of other documents which basically set out your debts, assets, financial information about you and your Chapter 13 Plan.
In order for me to help in the preparation of those documents it is helpful if you fill out the Questionnaires which I can email you if you have internet access. By answering these questions online before we allows me to spend more time focused on your issues. If you don't have internet access or don't feel comfortable using it we can review the questions in person when we meet.
To Qualify for a Chapter 13
You, even if self-employed or operating an unincorporated business, are eligible to file chapter 13 as long as the your unsecured debt is less than $336,900 and your secured debt is less than $1,010,650.
You cannot file under chapter 13 if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to your willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens.
In addition, you cannot file chapter 13 unless, within 180 days before filing, you received credit counseling from an approved credit counseling agency. There are exceptions in emergency situations to this rule. I can explain in more detail when and how to take this credit counseling when we meet. It is not a difficult thing to accomplish but it is very important that it is completed before your case is filed.
Filing fee for Chapter 13
The filing fee for a chapter 13 is $278. With the court's permission, it may be paid in installments.
Why file a chapter 13
Chapter 13 offers you some advantages over a chapter 7. Chapter 13 offers you the opportunity to save your home from foreclosure. In a chapter 13 you By filing under pay delinquent mortgage payments over time while you maintain the current payment. It also allows you, in certain circumstances, to reschedule monthly payments on automobiles etc as well as lower high interest rates. Doing this may lower the payments. Chapter 13 also has a special provision for protecting cosigners on "consumer debts."
It also allows you to make payments on back due child support, taxes, student loans and other debts without worry that the creditors will garnish your wages.
If you have lost your driving privileges it is sometimes possible to obtain back your license at the beginning of the case and pay back those tickets as part of your case.
Automatic stay In a Chapter 13
Filing a petition under chapter 13 "automatically stays" (stops) most collection actions against the your and your property. But filing does not stay certain types of actions listed under 11 U.S.C. § 362(b), and the stay may be effective only for a short time in some situations. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor.
Chapter 13 also contains a special automatic stay provision that protects co-signers. A creditor may not seek to collect a "consumer debt" from any individual who is liable along with you provided you pay this obligation during your case. If you have any of these obligations be sure to tell me.
Meeting of creditors In a Chapter 13
Between 20 and 40 days after the petition is filed, the case trustee will hold a Meeting of Creditors. (Sometimes known as a 341 Meeting.) During this meeting, the chapter 13 trustee puts you under oath, and both the trustee and creditors (if any) ask questions. In some limited circumstances, attendance at the Meeting of Creditors can be waived by the Court. In most cases the meeting last about 15 minutes.
The Chapter 13 Plan
You must file your chapter 13 plan with the petition or within 15 days after the petition is filed. The plan must be submitted for court approval and must provide for payments of fixed amounts to the trustee on a regular basis, typically biweekly or monthly. The trustee then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims.
There are three types of claims: priority, secured, and unsecured. Priority claims are those granted special status by the bankruptcy law, such as some taxes, delinquent child support and the costs of bankruptcy proceeding. Secured claims are those for which the creditor has the right take back certain property (i.e., the collateral) if you do not pay the underlying debt. In contrast to secured claims, unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by the debtor.
The plan must pay priority claims in full unless a particular priority creditor agrees to different treatment of the claim or, in the case of a domestic support obligation, unless you agree to contribute all "disposable income" to a five-year plan.
If you want to keep the collateral securing a particular claim, the plan must provide that the creditor receive at least the value of the collateral. If the obligation underlying the secured claim was used the buy the collateral (e.g., a car loan), and the debt was incurred within certain time frames before the bankruptcy filing, the plan must provide for full payment of the debt, not just the value of the collateral (which may be less due to depreciation). Interest can sometimes be lowered. Payments to certain secured creditors (i.e., the home mortgage lender), may be made over the original loan repayment schedule (which may be longer than the plan) so long as any arrearage is made up during the plan.
The plan need not pay unsecured claims in full as long it provides that you will pay all projected "disposable income" over an "applicable commitment period," and as long as unsecured creditors receive at least as much under the plan as they would receive if your assets were liquidated under chapter 7.
The amount of money you will pay in a chapter 13 case and the number of months the plan will last is something that needs to be calculated and no 2 cases are the same. In part, it depends on how much the Court determines you can afford to pay and in part it is based upon the amount of priority and secured debt you keep.
Even before the plan has been approved by the Court, you must start making plan payments to the trustee. This is normally done by the Court issuing a wage directive so that the funds are paid directly from the employer to the trustee. This practice increases the likelihood that payments will be made on time and that you will complete the plan. In any event, you fail to make the payments due under the confirmed plan, the court may dismiss the case or convert it to a chapter 7 case. The Court may also dismiss or convert your case if you fails to pay any child support or alimony or if you fail to make file required tax returns.
No more than 45 days after the meeting of creditors, the bankruptcy judge holds a confirmation hearing to decide whether the plan is feasible and meets the standards set forth in the Bankruptcy Code. Creditors will receive 25 days' notice of the hearing and may object to confirmation. While a variety of objections may be made, the most frequent ones are that payments offered under the plan are less than creditors would receive if your assets were liquidated or that your plan does not commit all of your projected disposable income for the three or five year plan period. Normally, you are not required to attend this hearing. If this situation changes my office will be in touch with you.
Occasionally, a change in circumstances may change your ability to make plan payments. The plan may be modified before or after court approval. Modification during the term of the plan to increase or decease the plan payment is possible due to increases or decreases in your income. The trustee schedules annual reviews to determine this.
The Chapter 13 Discharge
You are entitled to a discharge upon completion of all payments under your plan so long as you: (1) certify (if applicable) that all domestic support obligations that came due prior to making such certification have been paid; (2) you have not received a discharge in a prior case filed within a certain time frame (two years for prior chapter 13 cases and four years for prior chapter 7, 11 and 12 cases); and (3) you have completed an approved course in financial management.
As a general rule, the discharge releases your from all debts provided for by the plan or disallowed, with the exception of certain debts. Debts not discharged in chapter 13 include certain long term obligations (such as a home mortgage), debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor's conviction of a crime. To the extent that they were not fully paid under the chapter 13 plan, you are responsible for these debts after the bankruptcy case has concluded. Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for restitution or damages awarded in a civil case for willful or malicious actions by the debtor that cause personal injury or death to a person will be discharged unless a creditor timely files and prevails in an action to have such debts declared non-dischargeable.
The discharge in a chapter 13 case is somewhat broader than in a chapter 7 case. Debts dischargeable in a chapter 13, but not in chapter 7, include debts for willful and malicious injury to property (as opposed to a person), debts incurred to pay non-dischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings.
The Chapter 13 Hardship Discharge
After confirmation of a plan, circumstances may arise that prevent you from completing the plan. In such situations, the Court can grant a "hardship discharge". Generally, such a discharge is available only if: (1) the failure to complete plan payments is due to circumstances beyond your control and through no fault of yours; (2) creditors have received at least as much as they would have received in a chapter 7 liquidation case; and (3) modification of the plan is not possible. Injury or illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge. The hardship discharge is more limited than the discharge described above and is basically the same discharge you would get in a chapter 7 case.
Audits In a Chapter 13
Individuals who file for relief under chapter 13 are subject to audit. At least one out of every 1,000 individual chapter 7 and chapter 13 cases will be randomly selected for audit. In addition, a case may be selected for an exception audit (audit of a case with income or expenditures above a statistical norm). The audit involves the verification of the income, expenses, and assets reported by you in the bankruptcy schedules and statements. You are required to provide some additional information and records and cooperate with the audit firm and provide this information promptly. There is no cost to you for the audit, except for the cost of making copies of documents needed for the audit. The information that you provide in connection with your case is subject to examination by the Attorney General or his designee. The audit firm will file a report containing the results of the audit. A copy of the report will be provided to your attorney. If the audit firm finds material misstatements of income, expenses, or assets, the clerk of the bankruptcy court will notify your creditors. Failure to cooperate with the audit firm, or failure to reasonably explain to the bankruptcy court any material misstatements contained in the audit firm's report, may result in the dismissal of your case or in the denial or revocation of your discharge, and, possibly, referral of the matter to the United States Attorney for criminal investigation.