Generally, Chapter 13 will lower the debts of individuals with regular income and stop all collection actions. As opposed to Chapter 7 (liquidation), most property will remain with the person filing. This generally protects homes, cars, and other consumer property, and does not affect the co-signers on those loans. Repayment is done through a federal court trustee over a period of three or five years. If the debtor's current monthly income is less than the applicable state median, the plan will be three years, and five years if it is above. 

 

 

 

Chapter 13 has several advantages over Chapter 7 liquidation. Chapter 13 provides the opportunity to save homes from foreclosure. Chapter 13 can stop foreclosure proceedings and allow people to catch up on mortgage payments over time. So long as all mortgage payments that come due during the Chapter 13 plan are paid on time, Chapter 13 allows an individual to reschedule other debts and extend them over the term of the chapter 13 plan. Chapter 13 also has a special provision that protects co-signers who would be liable under Chapter 7. Finally, Chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a Chapter 13 trustee who then distributes payments to creditors.  Individuals will have no direct contact with creditors while under Chapter 13 protection.

 

 

Any individual with regular income may file for Chapter 13 relief if the individual's unsecured debts are less than $336,900 and secured debts are less than $1,010,650.   A corporation or partnership may not be a Chapter 13 debtor.   There are limits if a person has filed bankruptcy before, so an attorney must be consulted in that situation.

 

 

 

You must receive credit counseling within 180 days prior to filing. This may be altered or excused in some situations where good cause is shown. However, it will be required of most filers due to the relative ease of on-line credit counseling programs.  If a repayment plan is developed during required credit counseling, it must be filed with the court.

 

There is a relatively in depth examination of a debtor during the Chapter 13 process. After filing a petition with the bankruptcy court, the debtor must also file with the court:

 

                        (1) schedules of assets and liabilities;

                        (2) a schedule of current income and expenditures;

                        (3) a schedule of executory contracts and unexpired leases;

                        (4) a statement of financial affairs;

                        (5) evidence of payment from employers, if any, received 60 days before filing; a statement of 
                             monthly net income and any anticipated increase in income or expenses after filing;

                        (6)  a record of any interest the debtor has in federal or state qualified education or tuition accounts. 

                        (7) a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during 
                             the case. A husband and wife may file a joint petition or individual petitions.

 

A Debtor will need the following:

 

            1. A list of all creditors and the amounts and nature of their claims;

            2. The source, amount, and frequency of the debtor's income;

            3. A list of all of the debtor's property; and

            4. A detailed list of the debtor's monthly living expenses, i.e., food, clothing, housing, taxes, transportation,
                medical, etc.

 

            Individuals must gather their spouse's complete financial information regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse is required so that the court, the trustee, and creditors can evaluate the household's financial position.

 

 

 

 

Filing the petition automatically stops most collection actions. There are certain exceptions in the code listed at 11 U.S.C. § 362(b), and the stay may be effective only for a short time in some situations. The stay arises automatically and requires no court action. Generally creditors may not use lawsuits, garnishments, or call. The bankruptcy clerk gives notice of the bankruptcy case to all creditors that are named in the petition.

 

 

 

Between 20 and 50 days after the debtor files the Chapter 13 petition, the Chapter 13 trustee will hold a meeting of creditors. If the U.S. trustee or bankruptcy administrator schedules the meeting at a place that does not have regular U.S. trustee or bankruptcy administrator staffing, the meeting may be held no more than 60 days after the debtor files.

 

                        (a). You will be placed under oath and:

 

                                    1. answer questions regarding his or her financial affairs and the proposed terms of the plan;

 

                                    2. if a husband and wife file a joint petition, they both must attend the creditors' meeting and 
                                        answer questions. 

 

Unless the court grants an extension, the debtor must file a repayment plan with the petition or within 15 days after the petition is filed. A plan is given to the court, and must provide for payments in fixed amounts to the trustee on a regular basis, typically biweekly or monthly. The trustee then pays the creditors according to the plan.

 

            There are three types of claims that exist in a Chapter 13 proceeding, and it is important to understand the difference, they are: priority, secured, and unsecured. (1)Priority claims are those granted special status (e.g., taxes) (2) Secured claims are those for which the creditor has the right take back certain property (e.g., a car) if the debtor does not pay the underlying debt. (3)Unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by the debtor (e.g. credit cards).

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 the debtor contributes all "disposable income" - discussed below - to a five-year plan.

 

            Generally, unsecured claims will not be paid in full if all projected "disposable income" over a three or five years period is paid under the plan, and so long as unsecured creditors receive at least as much under the plan as they would receive if the debtor's assets were liquidated under Chapter 7. In Chapter 13, "disposable income" is income, less amounts reasonably necessary for the maintenance or support of the debtor or dependents and less charitable contributions up to 15% of the debtor's gross income. If the debtor operates a business, the definition of disposable income excludes those amounts which are necessary for ordinary operating expenses. Child support payments are not considered income for this purpose. 

 

 

            Within 30 days after filing, every debtor must start making plan payments to the trustee. Any secured loan or lease payments due before the debtor's plan is confirmed by the court the debtor must make adequate protection payments directly to the secured lender or lessor - deducting the amount paid from the amount that would otherwise be paid to the trustee. This is usually the case with home and car payments.

 

            No later than 45 days after the meeting of creditors, the bankruptcy judge must hold a confirmation hearing to decide if the plan is reasonable and meets the standards under the Bankruptcy Code.  Creditors will receive 25 days notice of the hearing and may object to confirmation. The most common objection in this process is that the payments offered under the plan are less than creditors would receive if the debtor's filed chapter 7, and that the plan does not commit all of the disposable income over the life of the plan.

 

            If the court confirms the plan, the Chapter 13 trustee will pay out funds as soon as  practicable. If the court denies the plan, a modified plan may be needed. The debtor may choose to convert the case to a liquidation case under chapter 7 in the event the plan is not confirmed. If the court does not to confirm the plan or the modified plan and dismisses, the court may authorize the trustee to keep some funds for costs, but the trustee must return all funds it has not already paid out to creditors.

 

 

            If the court confirms the plan, the debtor must make regular payments to the trustee, creating a fixed budget. Furthermore, while confirmation of the plan entitles the debtor to retain property as long as payments are made, the debtor may not incur new debt without consulting the trustee, because additional debt may compromise the debtor's ability to complete the plan.

 

            Payroll deductions are a good way to fund the plan. Failing to make the payments due under the plan may result in the court dismissing the case or convert it to a liquidation case under Chapter 7 of the Bankruptcy Code. The court may also dismiss or convert the debtor's case if the debtor fails to pay any post-filing domestic support obligations (i.e., child support, alimony), or fails to make required tax filings during the case. The bankruptcy law regarding the scope of the chapter 13 discharge is complex and has recently undergone major changes. Therefore, debtors should consult competent legal counsel prior to filing regarding the scope of the Chapter 13 discharge.

 

 

            If all obligations under the plan are met and the debtor: (1) certifies that all domestic support obligations that came due prior to making such certification have been paid; (2) has 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) has completed an approved course in financial management. The court will not enter the discharge, however, until it determines, after notice and a hearing, that there is no reason to believe there is any pending proceeding that might give rise to a limitation on the debtor's homestead exemption. The discharge releases the debtor from all debts provided for by the plan with limited exceptions. Creditors 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.

 

            As a general rule, the discharge releases the debtor from all debts provided for by the plan with some exceptions. Debts not discharged in chapter 13 include certain long term obligations (e.g., 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. If not fully paid under the plan, responsibility remains 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.

 

A Chapter13 discharge has greater scope that a discharge granted under than in a chapter 7 case. Debts dischargeable in a chapter 13 but not in chapter 7, may include debts for willful and malicious injury to property, and debts incurred to pay tax obligations, and debts arising from settlements in divorce or separation proceedings.

 

 

            After confirmation of a plan, circumstances may arise that prevent the debtor from finishing the plan whereby the debtor may ask the court to grant a "hardship discharge." Generally, such a discharge is available only if: (1) the debtor's failure to complete plan payments is due to circumstances beyond the debtor's control and through no fault of the debtor; (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. A hardship discharge is limited, and does not apply to any debts that the would not be discharged under Chapter 7.

 

 Chapter 13 Official Notice