Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows clients to reorganize their debts and pay their creditors in accordance with a Chapter 13 Plan which usually range from three to five years. Monthly plan payments are made to the bankruptcy Chapter 13 Trustee.
The filing of a Chapter 13 bankruptcy can stop house foreclosures and vehicle repossessions and give debtors an oppurtuntiy to catch up their payments through the Chapter 13 Plan and retain their property. It will also stop any wage garnishments.
A Chapter 13 Plan may allow you to lower your interest rate on your automobile mortgage to what is now usually 5.25% interest.
If you have had your vehicle over 2.5 years and owe more on the mortgage than the vehcile is worth you can keep the vehicle and you only have to pay what the vehicle is actually worth.
A Chapter 13 can also stop the Internal Revenue Service from taking futher action against you such as garnishing your wages or placing a tax lien againt you. Generally tax debt is not dischargeable and must be repaid through the Chapter 13 Plan however in some circumstance tax debt can be discharged without having to be paid. In the event that you are required to pay the tax debt it can be paid back at 0% interest and no further penalties or interest will accure on the past due tax debt.
In most case, unsecured creditors receive pennies on the dollar or nothing at all and they are discharged after completion of the plan.
The cost for the filing of a Chapter 13 bankrupcty varies depending on the type of debt and your monthly plan payments under the plan. All attorney fees are paid through the Chapter 13 Plan. The inital fee to be paid before your case is filed is usually $325.00, however the fee may be waived by The Willis Law Firm, LLC under certain circumstances.
Chapter 13 Frequently Asked Questions
- What is chapter 13 and how does it work?
Chapter 13 is that part (or chapter) of the Bankruptcy code under which a person may repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. The Bankruptcy Code is that portion of the federal laws that deal with bankruptcy. A person who files under chapter 13 is called a debtor. In a chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. The plan must be approved by the court to become effective. If the court approves the debtor’s plan, most creditors will be prohibited from collecting their claims from the debtor during the course of the case. The debtor must make regular payments to a person called the chapter 13 trustee, who collects the money paid by the debtor and disburses it 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.
- How does chapter 13 differ from chapter 7 for a debtor?
The basic difference between chapter 7 and chapter 13 is that under chapter 7 the debtor’s nonexempt property (if any exists) is liquidated to pay as much as possible of the debtor’s debts, while in most chapter 13 cases a portion of the debtor’s future income is used to pay as much of the debtor’s debts as is feasible considering the debtor’s circumstances. As a practical matter, under chapter 7 the debtor loses all or most of his or her nonexempt property and receives a chapter 7 discharge, which releases the debtor from liability for most debts. Under chapter 13, the debtor usually retains his or her nonexempt property, must pay off as much of his or her debts as the court deems feasible, and receives a chapter 13 discharge, which is broader than a chapter 7 discharge and releases the debtor from liability for several types of debts that are not dischargeable under chapter 7. However, a chapter 13 case normally lasts much longer than a chapter 7 case and is usually more expensive for the debtor.
- When is chapter 13 preferable to chapter 7 for a debtor?
Chapter 13 is usually preferable for a person who:
- wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time,
- has valuable nonexempt property or has valuable exempt property securing debts, either of which would be lost in a chapter 7 case,
- is not eligible for a discharge under chapter 7,
- has one or more substantial debts that are dischargeable under chapter 13 but not under chapter 7, or
- has sufficient assets with which to repay most debts, but needs temporary relief from creditors in order to do so.
- How does chapter 13 differ from a private debt consolidation service?
In a chapter 13 case, the bankruptcy court can provide aid to the debtor that private debt consolidation services cannot provide. For example, 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.
- What is a chapter 13 discharge?
It is a court order releasing a debtor from all dischargeable debts and ordering creditors not to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay. There are two types of chapter 13 discharges: a full or successful plan discharge, which is granted to a debtor who completes all payments called for in the plan, and a hardship plan discharge, which is granted to a debtor who is unable to complete the payments called for in the plan due to circumstances for which the debtor should not be held accountable. A full chapter 13 discharge is broader and discharges more debts than a chapter 7 discharge, while a hardship chapter 13 discharge is similar to a chapter 7 discharge.
- What types of debts are dischargeable under chapter 13?
A full chapter 13 discharge must be granted upon the completion of all payments required in the plan discharges a debtor from all debts except:
- debts that were paid outside of the plan and not covered in the plan,
- debts for alimony, maintenance, or support
- debts for death or personal injury caused by the debtor’s operation of a motor vehicle while unlawfully intoxicated,
- debts for restitution or criminal fines included in a criminal sentence imposed on the debtor,
- debts for most student loans or educational obligations,
- installment debts whose last payment is due after the completion of the plan, and
- debts incurred while the plan was in effect that were not paid under the plan.
- A hardship chapter 13 discharge granted when a debtor is unable to complete the payments under a plan due to circumstances for which the debtor should not be held accountable, discharges the debtor from all debts except:
- secured debts (i.e., debts secured by mortgages or liens),
- debts that were paid outside of the plan and not covered in the plan,
- installment debts whose last payment is due after the completion of the plan,
- debts incurred while the plan was in effect that were not paid under the plan, and
- debts that are not dischargeable under chapter 7.
- What is a chapter 13 plan?
It is a written plan presented to the bankruptcy court by a debtor that states how much money or other property the debtor will pay to the chapter 13 trustee, how long the debtor’s payments to the chapter 13 trustee continue, how much will be paid to each of the debtor’s creditors, which creditors will be paid outside of the and certain other technical matters.
- What is a chapter 13 trustee?
A chapter 13 trustee is a person appointed by the United States trustee to collect payments from the debtor, make payments to creditors in the manner set forth in the debtor’s plan, and administer the debtor’s chapter case until it is closed. In some cases the chapter 13 trustee is required to perform certain other duties, and the debtor is always required to cooperate with the chapter 13 trustee.
- Must all debts be paid in full under a chapter 13 plan?
No. While priority debts, such as debts for alimony, maintenance and support and debts for certain taxes, and fully secured debts must be paid in full under a chapter 13 plan, only an amount that the debtor can reasonably afford must be paid on most debts. The unpaid balances of most debts that are not paid in full under a chapter 13 plan are discharged upon completion of the plan.
- When must the debtor begin making payments to the chapter 13 trustee and how must they be made?
The debtor must begin making payments to the chapter 13 trustee within 30 days after the debtor’s plan is filed in the court, and the plan must be filed with the court within 15 days after the case is filed. The payments must be made regularly, either on a weekly, biweekly, or monthly basis. If the debtor is employed, the court requires the payments to be made by the debtor’s employer, otherwise, the payments can be made by either the debtor or the debtor’s employer.
- How long does a chapter 13 plan last?
A chapter 13 plan must last for three years, unless all debts can be paid off in full in less time. However, a chapter 13 plan can last for as long as five years, if necessary.
- Who is eligible to file under chapter 13?
Any natural person may file under chapter 13 if the person:
- resides in, does business in, or owns property in the United States,
- has regular income,
- has unsecured debts of less than $383,175,
- has secured debts of less than $1,149,525,
- is not a stockbroker or a commodity broker, and
- has not been a debtor in another bankruptcy case that was dismissed within the last 180 days on certain technical grounds. A person meeting the above requirements may file under chapter 13 regardless of when he or she last filed a bankruptcy case or received a bankruptcy discharge. Corporations, partnerships and limited liability companies may not file under chapter 13.
- May a husband and wife file jointly under chapter 13?
A husband and wife may file jointly under chapter 13 if each of them meets the requirements listed in the answer to Question 18 above, except that only one of them need have regular income and their combined debts must meet the debt limitations described in the answer to Question 18 above.
- May a self-employed person file under chapter 13?
Yes. A self-employed person meeting the eligibility requirements listed in the answer to Question 18 above may file under chapter 13. A debtor engaged in business may continue to operate the business during the chapter 13 case.
- May a chapter 7 case be converted to chapter 13?
A pending chapter 7 case may be converted to chapter 13 at any time at the request of the debtor, if the debtor has not been previously converted to chapter 7 from chapter 13.
- What fees are charged in a chapter 13 case?
There is a $251 filing fee charged when the case is filed, which may be paid in installments if necessary. In addition, the chapter 13 trustee assesses a fee of 10 percent (may vary pursuant to district) on all payments made under the plan. These fees are in addition to the fee charged by the debtor’s attorney.
- Will a person lose any property if he or she files under chapter 13?
Usually not under chapter 13. Creditors are usually paid out of the debtor’s income and not from the debtor’s property. However, if a debtor has valuable nonexempt property and has insufficient income to pay enough to creditors to satisfy the court, some of the debtor’s property may have to be used to pay creditors.
- How does filing under chapter 13 affect collection proceedings and foreclosures previously filed against the debtor?
The filing of a chapter 13 case automatically stays (stops) lawsuits, attachments, garnishments, foreclosures, and other actions by creditors against the debtor or the debtor’s property. A few days after the case is filed, the court will mail a notice to all creditors advising them of the automatic stay. Certain creditors may be notified sooner, if necessary. Most creditors are prohibited from proceeding against the debtor during the entire course of the chapter 13 case. If the debtor is later granted a chapter 13 discharge, the creditors will then be prohibited from collecting the discharged debts from the debtor after the case is closed.
- May a person whose debts are being administered by a financial counselor file under chapter 13?
Yes. A financial counselor has no legal right to prevent a person from filing any type of bankruptcy case, including a chapter 13 case.
- How does filing under chapter 13 affect a person’s credit rating?
It may worsen it, at least temporarily. However, if most of a person’s debts are ultimately paid off under a chapter 13 plan, that fact may be taken into account by credit reporting agencies. If very little is paid on most debts, the credit-rating effect of a chapter 13 case may be similar to that of a chapter 7 case.
- Are the names of persons who file under chapter 13 published?
When a chapter 13 case is filed, it becomes a public record and the name of the debtor may be published by some news papers and credit reporting agencies and on the internet.
- Is a person’s employer notified when he or she files under chapter 13?
In most cases, yes. Many courts require a debtor’s employer to make payments to the chapter 13 trustee on the debtor’s behalf. Also, the chapter 13 trustee may contact an employer to verify the debtor’s income. However, if there are compelling reasons for not informing an employer in a particular case, it may be possible to make other arrangements for the required information and payments.
- Does a person lose any legal rights by filing under chapter 13?
No. Filing under chapter 13 is a civil proceeding and not a criminal proceeding. Therefore, a person does not lose any legal or constitutional rights by filing a chapter 13 case.
- When does a debtor have to appear in court in a chapter 13 case?
Most debtors have to appear in court only once for a hearing called the meeting of creditors. If objections are filed to the proposed chapter 13 plan debtors may be required 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 usually held approximately two to three weeks after the meeting of creditors. The debtor’s testimony should not be lengthy at either hearing, however. If difficulties or unusual circumstances arise during the course of a case, additional court appearances may be necessary.
- What if the debtor is temporarily unable to make the chapter 13 payments?
If the debtor is temporarily out of work, injured, or otherwise unable to make the payments required under a chapter 13 plan, the plan can usually be modified so as to enable the debtor to resume the payments when he or she is able to do so. If it appears that the debtor’s inability to make the required payments continue indefinitely or for an extended period, the case may be dismissed or converted to chapter 7.
- What if the debtor incurs new debts or needs credit during a chapter 13 case?
Only two types of credit obligations or debts incurred after the filing of the case may be included in a chapter 13 plan. These are:
- debts for taxes that become payable while the case is pending unless objected to by the taxing authority, and
- consumer debts arising after the filing of the case that are for property or services necessary for the debtor’s performance under the plan and that are approved in advance by the chapter 13 trustee.
- All other debts or credit obligations incurred after the case is filed must be paid by the debtor outside the plan. Some courts issue an order prohibiting the debtor from incurring new debts during the case unless they are approved in advance by the chapter 13 trustee. Therefore, the approval of the chapter 13 trustee should be obtained before incurring credit or new debts after the case has been filed. The incurrence of regular debts, such as debts for telephone service and utilities, do not require the trustee’s approval.
- What if the debtor later decides to discontinue the chapter 13 case?
The debtor has the right to either dismiss a chapter 13 case or convert it to chapter 7 at any time for any reason. However, if the debtor simply stops making the required chapter 13 payments, the court may compel the debtor or the filed employer to make the payments and to comply with the orders of the court. Therefore, the debtor who wishes to discontinue a chapter 13 case should do so through his or her attorney.
- What happens if a debtor is unable to complete the chapter 13 payments?
A debtor who is unable to complete the chapter 13 payments has three options:
dismiss the chapter 13 case, convert the chapter 13 case to chapter 7, or if the debtor is unable to complete the payments due to circumstances for which he or she should not be held accountable, close the case and obtain hardship chapter 13 discharge as described in the answer to Question 6 above.
31. What is the role of the filed attorney in a chapter 13 case?
The filed attorney performs the following functions in a typical chapter 13 case:
- Examining the debtor’s financial situation and determining whether chapter 13 is a feasible alternative for the debtor, and if so, whether a single or a joint case should be filed.
- Assisting the debtor in the preparation of a budget.
- Examining the liens or security interests of secured creditors to ascertain their validity or avoidability, and taking the legal steps necessary to protect the filed interest in such matters.
- Devising and implementing methods of dealing with secured creditors.
- Assisting the debtor in devising a chapter 13 plan that meets the needs of the debtor and is acceptable to the court.
- Preparing the necessary pleadings and chapter 13 forms.
- Filing the chapter 13 forms and pleadings with the court and paying, or providing for the payment of, the filing fee.
- Attending the meeting of creditors, the confirmation hearing, and any other court hearings required in the case
- Assisting the debtor in obtaining court approval of a chapter 13 plan
- Checking the claims filed in the case, filing objections to improper claims, and attending court hearings thereon.
- Assisting the debtor in overcoming any legal obstacles that may arise during the course of the case.
- Assisting the debtor in obtaining a discharge upon the completion or termination of the plan.