Chapter 13 Bankruptcy
Bankruptcy Chapter 13 provides an "automatic stay" that stops debt collection and creditor harassment now! Chapter 13 bankruptcy may be right for you if:
- You are tired of debt collection calls demanding payments!
- You are unable to make even minimum credit card payments!
- You are facing foreclosure, wage garnishment or other lawsuits!
- You are making payments but your balance never seems to go down!
- You keep telling debt collectors you can’t afford what they are demanding you pay!
What is Chapter 13 bankruptcy?
How does chapter 13 work?
How much does it cost to file chapter 13 bankruptcy?
Three Easy Steps for Preparing Your Own Bankruptcy
Advantages to using professional preparation services.
Chapter 13 General Information
Making your re-payment plan work
What is a chapter 13 Discharge?
What is a Chapter 13 Hardship Discharge?
Chapter 13 – General Notes
Up What is Chapter 13 bankruptcy?
Chapter 13 bankruptcy is a repayment plan that you submit to the bankruptcy court. It describes how you intend to pay off your debts, over a 3-5 year period, for as little as 10 cents on the dollar.
Chapter 13 Bankruptcy is designed to give you a fresh start and was specifically written for individuals who desire to pay their debts but, due to a loss of job, disability, or other personal crisis, can no longer afford to make their regular monthly payments and need relief from high interest rates, late fees and the penalties that keep piling up each month.
Up How does chapter 13 work?
It’s a pretty straight-forward process.
- You gather the following information: creditor’s names, addresses and amount of debt; source, amount and frequency of your income; a list of all your property and detailed list of your monthly living expenses.
- Fill out the required bankruptcy forms (also called petition or casefile)
- File your repayment plan in the nearest federal court
- The court issues an "automatic stay" that stops all collection actions and prohibits creditors from initiating/continuing lawsuits or wage garnishment, even telephone calls demanding payment must stop!
- Usually about 20 to 40 days after filing your petition, the court will notify you of the 341 meeting which you must attend and generally takes only 10-15 minutes. The purpose of this meeting is for creditors (if any even show up) to question your claim that you are unable to pay your debts. Creditors want to know if you could pay at least 50 cents on the dollar, and if not, they won’t waste their time objecting to the discharge.
- The bankruptcy judge officially approves your plan.
- Begin making payments within 30 days and continue until completing your plan.
- After completing all payments, you’ll receive a discharge (legal document releasing you your debts)
- With discharge notice in hand, you are officially released from having personal liability for any discharged debt. (creditors cannot take action against you or your exempted property)
- Begin rebuilding your credit rating!
Up How much does it cost to file chapter 13 bankruptcy?
Believe it or not, you can file your own bankruptcy paperwork for less than you think! Currently, the costs are:
- $160 filing fee;
- $30 miscellaneous administrative fee
- FREE Forms
The filing fee and miscellaneous fee comes to $190 and these can be paid in up to 4 payments over 120 days. If a joint petition is filed, only one filing fee and one administrative fee is charged.
(Filing fees are subject to change so be sure to check with the court clerk to be sure)
Up Chapter 13 General Information
Chapter 13 is designed for individuals with regular income who desire to pay their debts but are currently unable to do so.
The purpose of chapter 13 is to enable financially distressed individual debtors, under court supervision and protection, to propose and carry out a repayment plan under which creditors are paid over an extended period of time.
Under this chapter, debtors are permitted to repay creditors, in full or in part, in installments over a three-year period, during which time creditors are prohibited from starting or continuing collection efforts. A plan providing for payments over more than three years must be “for cause” and be approved by the court. In no case may a plan provide for payments over a period longer than five years. 11 U.S.C. 1322(d).
Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individuals unsecured debts are less than $250,000 and secured debts are less than $750,000. 11 U.S.C. § 109(e).
A corporation or partnership may not file chapter 13. Also, individuals cannot file under chapter 13 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor’s 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. 11 U.S.C. 109(g), 362(d) and (e).
When a husband and wife file a joint petition or each spouse files an individual petition, the above detailed data must be gathered for both spouses. So that financial responsibilities can be accurately assessed when only one spouse files, the income and expenses of the non-filing spouse should be included in the debtor’s schedules and statement of financial affairs.
A primary role of the chapter 13 trustee is to serve as a disbursing agent, collecting payments from you and making distributions to your creditors. 11 U.S.C. § 1302.
Filing chapter 13 “automatically stays” most collection actions against the debtor or the the debtor’s property. 11 U.S.C. § 362.
As long as the “stay” is in effect, creditors generally cannot initiate or continue any lawsuits, wage garnishment, or even telephone calls demanding payments. Creditors receive notice of the filing of the petition from the clerk or the trustee. Furthermore, chapter 13 contains a special automatic stay provision applicable to creditors.
Specifically, after the commencement of a chapter 13 case, unless the bankruptcy court authorizes otherwise, a creditor may not seek to collect a “consumer debt” from any individual (a co-signer) who is liable with the debtor . 11 U.S.C. 1301.
Consumer debts are those incurred by the consumer, as opposed to business needs. By virtue of the automatic stay, an individual debtor faced with a threatened foreclosure of the mortgage on his or her principal residence can prevent an immediate foreclosure by filing a chapter 13 petition.
Chapter 13 then affords you a right to cure defaults on long-term home mortgage debts by bringing the payments current over a reasonable period of time. You are permitted to cure a default with respect to a lien on your principal residence up until the completion of a foreclosure sale under state law. 11 U.S.C. 1322(c).
You must file a plan of repayment with the petition or within fifteen days thereafter, unless extended by the court for cause. Bankruptcy Rule 3015.
The chapter 13 plan must provide for the full payment of all claims entitled to priority under Section 507 (unless the holder of a particular claim agrees to different treatment of the claim); if the plan classifies claims, provide the same treatment for each claim within each class; and provide for the submission of such portion of the debtor’s future income to the supervision of the trustee as is necessary for the execution of the plan. 11 U.S.C. § 1322.
Other plan provisions are permissive. Plans, which must be approved by the court, 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.
If the trustee or a creditor with an unsecured claim objects to confirmation of the plan, the debtor is obligated to pay the amount of the claim or commit to the proposed plan all projected “disposable income” during the period in which the plan is in effect. 11 U.S.C. § 1325(b).
Disposable income is defined as income not reasonably necessary for the maintenance or support of the debtor or dependents.
If the debtor operates a business, disposable income is defined as excluding those amounts which are necessary for the payment of ordinary operating expenses. 11 U.S.C. 1325(b)(2)(A) and (B).
A meeting of creditors (341) is held in every case, during which the debtor is examined under oath.
It is usually held 20 to 50 days after the petition is filed. If the United States trustee or bankruptcy administrator designates a place for the meeting which is not regularly staffed by the United States trustee or bankruptcy administrator, the meeting may be held no more than 60 days after the order for relief. Bankruptcy Rule 2003(a). The debtor must attend the meeting, at which creditors may appear and ask questions regarding the debtor’s financial affairs and the proposed terms of the plan. 11 U.S.C. 343.
If a husband and wife have filed a joint petition, they both must attend the creditors’ meeting. The trustee will also attend the meeting and question the debtor on the same matters. In order to preserve their independent judgment, bankruptcy judges are prohibited from attending. 11 U.S.C. § 341(c).
If there are problems with the plan, they are typically resolved during or shortly after the creditors’ meeting. Generally, problems may be avoided if the petition and plan are complete and accurate and the trustee has been consulted prior to the meeting.
In a chapter 13 case, unsecured creditors who have claims against the debtor must file their claims with the court within 90 days after the first date set for the meeting of creditors. Bankruptcy Rule 3002(c). A governmental unit, however, may file a proof of claim until the expiration of 180 days from the date the case is filed. 11 U.S.C. § 502(b)(9).
After the meeting of creditors is concluded, the bankruptcy judge must determine at a confirmation hearing whether the plan is feasible and meets the standards for confirmation set forth in the Bankruptcy Code. 11 U.S.C. §§ 1324 and 1325.
Creditors, who will receive 25 days’ notice of the hearing, 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 the debtor’s assets were liquidated or that the debtor’s plan does not commit all of the debtor’s projected disposable income for the three-year period of the plan.
Within 30 days after the filing of the plan, even if the plan has not yet been approved by the court, you must start making payments to the trustee. 11 U.S.C. § 1326(a)(1).
If the plan is confirmed by the bankruptcy judge, the chapter 13 trustee commences distribution of the funds received in accordance with the plan “as soon as practicable.” 11 U.S.C. § 1326(a)(2).
If the plan is not confirmed, you have the right to file a modified plan. 11 U.S.C. 1323. You also have the right to convert the case to a liquidation case under Chapter 7. 11 U.S.C. 1307.
If the plan or modified plan is not confirmed and the case is dismissed, the court may authorize the trustee to retain a specified amount for costs, but all other funds paid to the trustee are returned to you. 11 U.S.C. 1326(a)(2).
On occasion, changed circumstances will affect a debtor’s ability to make plan payments, a creditor may object or threaten to object to a plan, or a debtor may inadvertently have failed to list all creditors.
In such instances, the plan may be modified either before or after confirmation. 11 U.S.C. 1323 & 1329. Modification after confirmation is not limited to an initiative by the debtor, but may be at the request of the trustee or an unsecured creditor. 11 U.S.C. 1329(a).
Up Making your re-payment plan work
The provisions of a confirmed plan are binding on the debtor and each creditor. 11 U.S.C. 1327. Once the court confirms the plan, it is the responsibility of the debtor to make the plan successful. The debtor must make regular payments to the trustee, which will require adjustment to living on a fixed budget for a prolonged period.
Alternatively, your employer can withhold the amount of the payment from your paycheck and transmit it to the chapter 13 trustee. Furthermore, while confirmation of the plan entitles you to retain property as long as payments are made, you may not incur any significant new credit obligations without consulting the trustee, as such credit obligations may have an impact upon the execution of the plan. 11 U.S.C. §§ 1305(c), 1322(a)(1) & 1327.
You may consent to the deduction of the plan payments from your paycheck. Experience has shown that this practice increases the likelihood that payments will be made on time and that the plan will be completed. In any event, failure to make the payments in accordance with the confirmed plan may result in dismissal of the case or its conversion to a liquidation case under Chapter 7 of the Bankruptcy Code. 11 U.S.C. § 1307(c).
Up What is a chapter 13 Discharge?
You are entitled to a discharge upon successful completion of all payments under the chapter 13 plan. 11 U.S.C. § 1328(a).
The discharge has the effect of releasing you from all debts provided for by the plan or disallowed (under Section 507) with limited exceptions.
Those creditors who were provided for in full or in part under the chapter 13 plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations.
In return for the willingness of the chapter 13 debtor to undergo the discipline of a repayment plan for three to five years, a broader discharge is available under chapter 13 than in a chapter 7 case. As a general rule, the debtor is discharged from all debts provided for by the plan or disallowed, except:
- certain long term obligations (such as a home mortgage),
- debts for alimony or child support,
- 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. 11 U.S.C. § 1328(a).
To the extent that these types of debts are not fully paid pursuant to the chapter 13 plan, the debtor will still be responsible for these debts after the bankruptcy case has concluded.
Up What is a Chapter 13 Hardship Discharge?
After confirmation of a plan, there are limited circumstances under which you may request the court to grant a “hardship discharge” even though you failed to complete plan payments. 11 U.S.C. § 1328(b).
Generally, such a discharge is available only if your failure to complete plan payments is due to circumstances beyond your control and through no fault of your own, after creditors have received at least as much as they would have received in a chapter 7 liquidation case and when 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 does not apply to any debts that are non-dischargeable in a chapter 7 case. 11 U.S.C. § 523.
Up Chapter 13 – General Notes
Section 507 sets forth nine categories of unsecured claims which Congress has, for public policy reasons, given priority of distribution over other unsecured claims.
Unsecured debts are generally defined as those for which the extension of credit was based purely upon an evaluation by the creditor of your ability to pay. In contrast, secured debts are those for which the extension of credit was based upon not only the creditor’s evaluation of your ability to pay, but upon the creditor’s right to seize pledged property on default.
Bankruptcy Administrators, rather than U.S. trustees, serve in the judicial districts in the states of Alabama and North Carolina.