A chapter 13 bankruptcy is also called a wage earner’s plan, as it sets up terms for repayment out of the debtor’s net income. The debtor or attorney proposes a repayment plan to the court for making installment payments on amounts owed to creditors. The term is generally three to five years, and creditors are not allowed to start or continue collection efforts during the time of the court’s protection, or “automatic stay.”
Chapter 13 Bankruptcy
Advantages
Chapter 13 bankruptcy filing gives individuals some advantages over a liquidation bankruptcy, or Chapter 7. The most important difference is that Chapter 13 bankruptcy can give people an opportunity to stave off foreclosure on their home. Foreclosure proceedings can be stopped and the delinquent mortgage payments paid out in the plan, while also paying their current mortgage payments on time. Individuals can also reschedule other secured debts (like car loans) and extend them over the life of the Chapter 13 repayment plan, sometimes resulting in lowered payments. There is also a special provision that protects co-signers built into the code. In fact, Chapter 13 is much like a bill consolidation loan. You pay the trustee and he distributes payments to creditors.
Eligibility
Any individual is eligible, even those who are self-employed. There is a threshold of $336,900 in unsecured debts, and secured debts must be less than $1,010,650, and these amounts are periodically changed due to consumer price index changes.
You cannot file bankruptcy if you had a previous bankruptcy petition dismissed due to willful failure to comply with court orders or failure to appear, or voluntarily dismissed within the previous 180 days. You also must receive credit counseling from an approved agency within 180 days before filing. There are exceptions made in emergency situations, and sometimes a debt management plan is developed and submitted for the trustee’s consideration.
How it Works
The case begins by filing a petition with the bankruptcy court in the county where the debtor lives. Forms needed to be filed are schedules of assets and liabilities, a schedule of current income and expenditures, a schedule of contracts and leases, and a statement of financial affairs, along with the certificate of credit counseling and any debt repayment plan developed through credit counseling, evidence of payment from employers for the period of 60 days prior to filing, a statement of monthly net income and any anticipated increase in income or expenses after filing, and a record of any interest the debtor has in federal or state qualified education or tuition accounts. Debtors must also provide the chapter 13 bankruptcy trustee with copies of tax returns or transcripts for the most recent year and copies of returns filed during the case (including any returns for previous years that hadn’t been filed when the case began). A husband and wife can file jointly or file separate petitions. Official Forms can be downloaded from the Internet at www.uscourts.gov/bkforms/index.html.
Charges include a $235 case filing fee, and $39 miscellaneous administrative fee. These fees are payable to the clerk upon filing, but can be paid in up to four installments, and be paid in full within 120 days of the filing date. The case can be dismissed if the fees are not paid as agreed.
The Official Bankruptcy Forms must be completed in their entirety, so the following information will be necessary:
* A list of all creditors with the amounts and types of claims,
* Source, frequency, and amount of income,
* A complete list of all property owned,
* A detailed list of monthly living expenses, utilities, shelter, food, taxes, transportation, etc.
The Chapter 13 trustee gives notice to all creditors named on the petition, and the debtor is protected by the “automatic stay” provision in the bankruptcy code, which means that collection efforts cease.
About 30 days after filing, the Chapter 13 bankruptcy trustee holds a meeting of creditors, during which the trustee places the debtor under oath, and both the trustee and creditors may ask questions of the debtor, who must attend and answer all questions put forth. Any problems with the plan as outlined are generally resolved during or shortly after the 341 meeting, and creditors have to file proof of claims with the court in order to participate in any distributions from the bankruptcy trustee.
Repayment Plan
Debtors file a repayment plan with the petition or within 15 days after filing, for court approval. The payment amounts have to be fixed, and paid regularly, typically biweekly or monthly. The trustee’s job is then to distribute the funds according to the plan. Creditors may get less than full payment on their claims, and this can range from 10%-100% of the amount they are owed.
There are three types of claims:
* Priority claims have special status, like most taxes and costs of the bankruptcy process.
* Secured claims are those backed up by collateral, like car and boat loans, etc.
* Unsecured claims are not protected by collateral, and are things like credit card debt and medical bills.
Bankruptcy law says priority claims must be paid in full. In the case of secured claims, the plan must give the creditor at least the value of the collateral in repayment. Payments to mortgage lenders will be paid as current during the plan, so long as the arrearages are made up during the plan. With unsecured claims, they need not be paid in full, but the debtor does need to contribute all disposable income during the period.
Within 30 days after filing, the debtor starts making payments to the trustee. No later than 45 days after the 341 meeting, the Chapter 13 bankruptcy judge holds a confirmation hearing and decides if the plan is feasible and creditors have 25 days to make objection, but if procedure is followed, a vast majority are confirmed. The trustee then begins disbursing funds to creditors on a regular basis. Modifications are permitted when circumstances change.
Making it Work
The debtor must make his payments to the trustee regularly in order for the plan to be successful, which requires living on a limited fixed budget for a prolonged period, and no new debt is allowed to be incurred without the trustee’s permission. The court can dismiss the case, or convert it to a Chapter 7, if payments aren’t made timely, if child support or alimony payments aren’t paid, or if required tax forms aren’t filed during the case.
Discharge
Upon completion of all scheduled payments under the plan, the debtor is discharged from the bankruptcy. Creditors paid under the plan, even if not paid in full, are not allowed to attempt collection actions.
This information was correct at the time of writing. Always check with a legal professional.
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