SO WHAT ARE THE ADVANTAGES TO CHAPTER 13?
Chapter 13 offers individuals a number of advantages over liquidation under Chapter 7. Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and try and work out a re-payment plan for missed and future payments.
Another advantage of chapter 13 is that it allows individuals to reschedule secured debts and extend them over the life of the chapter 13 plan. Doing this may lower the payments and help the debtor keep property that they may not have been able to with the higher payments.
Chapter 13 also has can protect third parties who are liable with the debtor on consumer debts or can also protect co-signers.
Finally, chapter 13 allows the debtor to consolidate his debt paying the monthly payment to the Trustee. This will make repayment easier while shielding current creditors from contacting you.
AM I ELIGIBLE FOR CHAPTER 13 BANKRUPTCY?
Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual’s unsecured debts are less than $360,475 and secured debts are less than $1,081,400 (These numbers are subject to change and we will update them as soon as possible if and when they do).
NOTE: This Chapter is only eligible to individuals, business entities or corporations are not eligible.
There are a few more restrictions that you need to be aware of. An individual 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. No individual may be a debtor under chapter 13 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency.
IF I AM ELIGIBLE, HOW DO I GET STARTED?
The first thing you must do is file a Chapter 13 Bankruptcy Petition in the Bankrupcty Court that oversees the area where you live. The filed petition is the first official step in the chapter 13 process. By filing the petition the court will enter an automatic stay which means creditors may no longer demand money from you, bring you to court to collect debt or even to proceed with foreclosure or repossession of your property.
The debtor through his attorney 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) a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling;
(6) evidence of payment from employers, if any, received 60 days before filing;
(7) a statement of monthly net income and any anticipated increase in income or expenses after filing;
(8) and a record of any interest the debtor has in federal or state qualified education or tuition accounts.
(9) a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case.
Note: A husband and wife may file a joint petition or individual petitions.
Don’t get too worried, while the list of documents looks daunting your attorney will help you through the process. They will make sure that you have everything you need and they will correctly prepare the documents that need to be filed on your behalf.
HOW MUCH DOES A BANKRUPTCY PETITION COST?
The courts must charge a $235 case filing fee and a $39 miscellaneous administrative fee.
WHAT IF I CAN’T AFFORD THE COURT COSTS?
If you cannot pay the court fees all at one time you may be able to ask the Bankruptcy Court to accept payments on the filing fee. Remember, the Court must grant you permission to do this and they usually base their permission on the particular facts of your case.
AFTER I FILE A PETITION HOW DOES A CHAPTER 13 BANKRUPTCY WORK?
After individual files a chapter 13 petition, an impartial trustee is appointed to administer the case. The chapter 13 trustee will serve as the person who collects payments from the debtor and makes the distributions to creditors.
Your Attorney will file a proposed plan as to how you are going to repay the debt over 3-5 years depending on your individual circumstances.
Between 20 and 50 days after the debtor files the chapter 13 petition, the chapter 13 trustee will hold a meeting of creditors. The debtor must attend the meeting and answer questions regarding his or her financial affairs and the proposed terms of the plan. The parties typically resolve problems with the plan either during or shortly after the creditors’ meeting.
After the meeting of creditors, the debtor, the chapter 13 trustee, and those creditors who wish to attend will come to court for a hearing on the debtor’s chapter 13 repayment plan. After which the Trustee will confirm your repayment plan and you can start repayment.
Your attorney will make sure that every form and document is provided and filled out correctly. Your attorney should also contact the trustee ahead of time to make sure that the plan will be workable and that all of the creditors will be satisfied. These steps by the attorney will not only speed up the process but also prevent any delays that that could delay the start of your repayment schedule.
WHO AND WHEN DO I START PAYING ACCORDING TO THE CONFRIMED CHAPTER 13 PLAN?
If you still have secured debts, such as a mortgage, these payments may be outside the plan and you will pay them off just as you normally would. The date and time of the payment will not change. If you miss a payment on a secured debt the creditor may as that the automatic stay be lifted and something like your house could go into foreclosure proceedings.
Unsecured debts on the other hand should all be consolidated into the repayment plan along with some secured debt (if your plan was structured a certain way) that was all accrued before filing bankruptcy. For these debts you will make a payment each month in the amount dictated by your individual plan. The trustee will take that payment and disburse it to the creditors according to how the plan is structured.
Any new debt that you may incur after the filing of bankruptcy will not be a part of the bankruptcy and will have to be paid according to the terms that you and the creditor have agreed to.
HOW MANY MONTHS DO I HAVE TO REPAY MY DEBTS?
This depends upon your plan which should be based on your income over the life of the plan. The plan will be between 3 to 5 years or 36 to 60 months.
CAN I PAY THE PLAN OFF EARLY?
No it really doesn’t work that way because if your income would allow for faster payback than the time bed in the plan than the Trustee most likely would have set your plan at the minimum 36 months and allowed for a larger portion of the money to go to your unsecured creditors.
IF I FALL INTO SOME EXTRA MONEY SHOULD I PAY MORE INTO MY PLAN?
Changes in circumstances may require that you file an amendment to your initial plan, which accounts for such changes in a modified plan payment.
IN A CHAPTER 13 REPAYMENT PLAN TYPICALLY HOW MUCH MONEY WILL I HAVE TO PAY BACK?
The amount you repay varies based on your specific financial situation, namely the amount of income you have remaining each month after expenses deemed necessary by the court.
AM I FREE FROM FORECLOSURE AFTER I FILE FOR BANKRUPTCY?
Yes, unless you start missing your mortgage payments. If you start missing your payments then the automatic stay could be lifted stripping you of all the protection that a Chapter 13 Bankruptcy provided.
IF I HAVE FEDERAL INCOME TAX DEBTS HOW WILL THEY BE TREATED IN CHAPTER 13 BANKRUPTCIES?
In most cases tax debt cannot be discharged.
WHAT HAPPENS IF I FAIL TO PAY A TRUSTEE?
Your case could be dismissed. If the Trustee moves to dismiss your case you will lose the protection of the bankruptcy by not reducing the debt owed and extinguishing any protective relief granted by the court.
WHAT HAPPENS IF I HAVE TROUBLE MAKING THE MONTHLY PAYMENT?
At the first sign that you may have trouble making your payment let your attorney know so that he may alert the Trustee or creditors involved. The Trustee will have the option to dismiss your case, but, if this is a one or two month set back most Trustees will allow you to make up the payments at some point in the future and will not dismiss the case. Remember, this is not a guaranteed outcome but usually things go a lot smoother if you communicate your issues with your attorney instead of waiting and missing payments.
WHAT IF MY INABILITY TO MAKE PAYMENTS BECOMES A PROBLEM?
The worst case scenario is that the case is dismissed. However, some debtors may have the opportunity, with Trustee permission, to convert the Chapter 13 Bankruptcy to another Chapter such as a liquidation bankruptcy like Chapter 7. However, you will have to meet the requirements of a Chapter 7 Bankruptcy to convert, so again the sooner you realize payments are going to be a problem it is best to alert your attorney so he can explore all of the options that are available to you.
ARE THERE ANY LEGAL FEES OTHER THAN THE ONES I PAID BEFORE FILING?
Some attorneys may charge reduced rates up front, with the remaining balance being paid through the plan. This makes filing for bankruptcy more accessible for some clients. In addition, there may be some fees based on any additional motions (including but not limited to work done on plan amendments, adversarial proceedings, extra motions, or conversion to another chapter), and those fees will all be determined by the agreement that you and your attorney set up in advance.
WHAT IS A FAIR FEE FOR THE ATTORNEY IN A CHAPTER 13 BANKRUPTCY?
Chapter 13 cases can be complicated and therefore legal fees are higher. Usually standard attorney’s fees will be between $3500 and $4500. If your Chapter 13 case involves a wholly-owned business, or other complicated legal issues, legal fees could be increased.