Chapter 13 Bankruptcy: Keeping What's Important
When an individual does not qualify for Chapter 7 bankruptcy, he/she is most likely eligible to file for Chapter 13. In most cases, individuals who file for Chapter 13 bankruptcy have suffered from a temporary loss that has put them too far behind in debt to catch up on their own. Chapter 13 bankruptcy does not completely erase debt, but consolidates debt and restructures it into a monthly payment plan that is affordable. Usually people awarded Chapter 13 make sufficient income to cover any living expenses, but not enough to pay off debts in full. When chapter 13 is awarded, the debtor pays for living expenses first, and then any left over money is used to repay creditors, even if it's just pennies on the dollar. Chapter 13 bankruptcy cases typically last for three to five years from initial filing to discharge, depending on the individual's ability to pay.
Chapter 13 Timeline
Chapter 13 Bankruptcy cases are significantly different from Chapter 7 Bankruptcy cases. There are too many extraneous variables to include within the scope of this illustration. However, the following flow chart represents the basic course of a typical successful Chapter 13 Bankruptcy case from the initial client interview through discharge. Typical Chapter 13 Bankruptcy cases can take between three to five years from Filing until Discharge. Case complexities and variables may extend the process.
Bankruptcy processing time varies from case to case, depending upon the size, nature and complexity of the case. However, most cases are processed and ready for filing within two to three weeks from submission of the completed Homework Packet. Chapter 13 Bankruptcy cases are much more complex than Chapter 7 Bankruptcy cases and could take longer to process.
Proof of Income
Clients who have turned in their completed Homework Packet must continue to send in paystubs or evidence of income to the Kuttner Law Firm up until the date their case has officially been filed with the United States Bankruptcy Court.
Emergency Bankruptcy Filings can usually be filed instantly and at virtually any time to stop creditors before a foreclosure, wage garnishment, or lawsuit can take place.
Chapter 13 Bankruptcy FAQ
Below we have provided answers to many commonly asked questions about Chapter 13 banruptcy. If you think Chapter 13 is right for you or if you would like to discuss your situation, call us or fill out the contact form on this page to set up a free consultation.
What is a Chapter 13 bankruptcy case and how does it work?
In Chapter 13 Debtors submit a plan for the repayment of all or a portion of their debts. The plan must be approved by the court to become effective. Once a Debtor's plan is approved (confirmed), the Debtor makes regular payments to the Chapter 13 Trustee who then disburses the money to creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, the Debtor is released from liability for the remainder of his or her dischargeable debts.
Will the filing of a Chapter 13 case stop a creditor from suing me, foreclosing on my home, or repossessing my car?
Yes. When a Chapter 13 case is filed, creditors must stop all collection activities including foreclosures, garnishments, repossessions, and the filing or continuation of lawsuits.
How does a Chapter 13 case differ from a Chapter 7 case?
In Chapter 7 cases, a Debtor's nonexempt prop erty, if any, is sold by the Trustee for the payment of the Debtor's creditors. In Chapter 13, a Debtor generally keeps all of his property while committing a portion of his future incometo the repayment of as much of the Debtor's debts as is possible. Most Chapter 7 cases do not involve the Debtor giving up any property. Generally, a Debtor's exemptions are sufficient to cover all of the Debtor's assets. A Chapter 13 discharge is slightly broader than a Chapter 7 discharge and releases the Debtor from liability for a few types of debts that are not dischargeable under Chapter 7. A Chapter 13 case normally lasts much longer than a Chapter 7 case and is usually more expensive for the Debtor.
When is it better to file a Chapter 13 case than a Chapter 7 case?
Debtors who can repay all, or most, of their debt from their future earnings and those who would lose valuable property in a Chapter 7 case should consider a Chapter 13 case. Chapter 13 is the only option for Debtor's who fail the means test or are otherwise ineligible for relief under Chapter 7. Chapter 13 may also be the better choice for Debtors who have issues with nondischargeable debt.
How does a Chapter 13 case differ from a private debt consolidation service?
The Bankruptcy Court can provide relief to a Debtor that a private debt consolidation service cannot provide. The court has the authority to prohibit creditors from attaching or foreclosing on the Debtor's property, to force unsecured creditors to accept a Chapter 13 plan that pays only a portion of their claims, and to discharge a Debtor from unpaid portions of debts. Private debt consolidation services have none of these powers. Private debt consolidation services often charge significant fees without being able to guarantee that all of the Debtor's creditors will accept the Debtor's proposed repayment.
What is a Chapter 13 discharge?
A discharge is an Order entered by the Court which releases a Debtor from all dischargeable debts that were provided for in the plan.
What types of debts are not dischargeable in Chapter 13 cases?
A Chapter 13 discharge releases the Debtor from liability on all debt except: debts not provided for by the plan; domestic support obligations; debts arising from personal injuries caused while the Debtor was operating a vehicle under the influence; debts arising from fraud, willful and malicious injuries, or embezzlement; educational debt; and restitution or criminal fines.
What is a Chapter 13 plan?
A Chapter 13 plan is a written proposal filed with the Bankruptcy Court that tells creditors how much money the Debtor will pay to the Chapter 13 Trustee, how long the Debtor's payments will last, and how much will be paid to each of the Debtor's creditors.
Must all debts be paid in full under a Chapter 13 plan?
No. Certain debts like domestic support obligations and taxes must be paid in full. However, unsecured creditors can receive from 0% to 100% of their debt. A Chapter 13 plan which provides for repayment of less than 70% of a Debtor's unsecured obligations has the same effect as the filing of a Chapter 7 case.
Do I have to list all of my creditors?
Yes, all creditors must be listed. However, home mortgages and car payments can be paid directly to creditors.
How much of a Debtor's income must be paid to the Chapter 13 Trustee under a Chapter 13 plan?
Usually all of the disposable income of the Debtor and the Debtor's spouse for a 3 or 5 year period must be paid to the Chapter 13 Trustee. Disposable income is income received by the Debtor and his or her spouse that is not deemed to be necessary for the support of the Debtor and his or her dependents.
When must the Debtor begin making payments to the Chapter 13 Trustee and how are the payments made?
The Debtor must begin making payments to the Chapter 13 Trustee within 30 days after the Chapter 13 case is filed with the court. Payments can be made by deduction order to the Debtor's employer. Payments made directly must be made in the form of cash or certified funds to the Trustee.
How long does a Chapter 13 plan last?
The length of a Chapter 13 plan depends on the Debtor's income. If the Debtor's annual income is less than the median family income, the plan must be at least 3 years. If the Debtor's annual income exceeds the median family income, the length of the plan must be 5 years unless all unsecured claims can be paid off in a shorter period. Under no circumstances can the plan last more than 5 years.
Is it necessary for all creditors to approve a Chapter 13 plan?
No. Although creditors have a right to object to the plan, the plan must be approved by the court, not by the creditors.
What is the difference between a secured creditor and an unsecured creditor?
A secured creditor is a creditor whose claim against the Debtor is secured by a valid mortgage, lien, or other security interest against property that is owned by the Debtor. An unsecured creditor is a creditor whose claim against the Debtor is not secured by a valid mortgage, lien or security interest against the Debtor's property. In other words, a secured creditor has collateral for its claim and an unsecured creditor does not. Secured claims must be paid in full with interest. Unsecured creditors receive only what the Debtor can reasonably afford to repay during the life of the Chapter 13 plan.
How are the claims of secured creditors dealt with in Chapter 13 cases?
If a Debtor wants to keep the property which secures a debt, the Debtor must provide for the payment of the secured creditor and for the retention of the creditor's lien. A Debtor may elect to surrender the collateral and any deficiency is generally treated as an unsecured claim. If the Debtor is in default to a secured creditor, the default must be cured (made current) within a reason able time.
What is the codebtor stay?
In situations where another person is obligated on a debt with the Debtor, Chapter 13 can provide protection for the codebtor. If a cosigned or guaranteed consumer debt is being paid in full, the creditor may not collect the debt from the cosigner or guarantor. The codebtor stay only applies to consumer debt.
Who is eligible to file a Chapter 13 case?
Only individuals who have sufficient regular and stable income and meet certain other requirements may file for relief under Chapter 13. Businesses are generally not eligible to file a Chapter 13 case. A husband and wife may file a joint case. Self-employed Debtor's may also file for relief and continue to operate their businesses while in Chapter 13.
What fees are charged in a Chapter 13 case?
There is a filing fee charged by the Court when the case is filed. The filing fee can be paid in installments as long as the Debtor has not filed a prior case where the filing fee was unpaid. In addition to the court costs, Debtors must pay for pre and post bankruptcy counseling, a credit report, attorney fees and fees charged by the Chapter 13 Trustee. Generally speaking, a Debtor can get into a Chapter 13 case, assuming the filing fee is to be paid in installments, with as little as $200 paid in advance. The ability to file a Chapter 13 case for little money down is one of the primary advantages of a Chapter 13 case.
Will a person lose any property if he or she files a Chapter 13 case?
Debtors usually retain all of their property in a Chapter 13 case. Creditors are usually paid out of the Debtor's income and not from the Debtor's property.
Will the filing of a Chapter 13 case stop creditors from calling me, filing suit, foreclosing on my house, or repossessing my property?
Yes, upon the filing of a Chapter 13 case creditors must stop all lawsuits, attachments, garnishments, foreclosures, and other actions against the Debtor or the Debtor's property. The filing of a case does not stop a good faith criminal prosecution.
How does filing a Chapter 13 case affect a person's credit rating?
The filing of a bankruptcy case can be reported on a Debtor's credit report for up to 10 years. Most people find that by filing a bankruptcy case their credit generally improves after they receive their discharge.
Will my employer know that I filed Chapter 13?
If your payments are to be made to the Trustee by deduction order, your employer will be notified. The use of a deduction order greatly increases the chance of your case being successfully completed. If there are compelling reasons for not informing your employer, you can make payments directly to the Trustee.
May employers or government agencies discriminate against persons who file Chapter 13 cases?
No. It is illegal for employers to discriminate against a person as to employ ment because that person has filed a Chapter 13 case. It is also illegal for local, state, or federal governmental agen cies to discriminate against a person as to the granting of licenses, permits, student loans, and similar grants because that person has filed a Chapter 13 case.
When does the Debtor have to appear in court in a Chapter 13 case?
Most Debtors have to appear in court only once at the first meeting of creditors. In some cases, Debtors may also have to appear for a hearing on the confirmation of the Debtor's Chapter 13 plan. The meeting of creditors is usually held about a month after the case is filed. The confirmation hearing is scheduled at a later date.
Can a Debtor incur new debt while in Chapter 13?
A Debtor can under limited circumstances incur new debt. The Trustee must approve most new debt incurred by a Debtor. For instance, a Chapter 13 Debtor cannot purchase a car on credit without the Trustee's approval.
What happens if a Debtor is unable to make all of his Chapter 13 payments?
If a Debtor fails to make the payments required by his plan, his case is subject to dismissal. Alternatively, the Debtor can elect to convert to a Chapter 7 case. If a Chapter 13 case is dismissed without the payment of all plan payments, the Debtor does not receive a discharge.
How is the attorney fee determined in Chapter 13?
The fee charged by an lawyer for representing a Debtor in a Chapter 13 case must be reviewed and approved by the Bankruptcy Court. This rule is followed whether the fee is paid to the attorney prior to or after the filing of the case, and whether it is paid to the lawyer directly by the Debtor or by the Chapter 13 Trustee. The court will not approve a fee unless it finds the fee to be reasonable.