Chapter 13 Bankruptcy Laws
Chapter 13 bankruptcy laws differ from Chapter 7 according to whether you have regular reliable income. Chapter 13 is also known as a repayment plan or the individual debt adjustment.
Through the Means test it is determined whether that income is enough to reorganized your debt or wiping it clean with a Chapter 7.
Additionally the advantage to filing chapter 13 as opposed to a chapter 7 is the ability to keep a home out of foreclosure and any other big ticket items that you do not want to part with and can work out a plan to keep. Though there still may be the opportunity to keep a home in Chapter 7 bankruptcy as well.
What happens in the chapter 13 bankruptcy is that payments are rescheduled into a new payment plan that will help resolve defaulted payments stretching payments over a longer period of time.
It is like a new consolidation loan with many of the protections that come with bankruptcy (creditors cannot continue or initiate collection activity nor lawsuits during the bankruptcy period) and once an agreement is established the payments must be made consistently and timely for the new agreement to remain in force.
Depending on your current income, a plan will be implemented for either 3 or 5 years, but no longer than the 5 years.
Another advantage in the chapter 13 bankruptcy laws is that a co-signer on a debt may also be protected as long as it is consumer debt.
Just as in the Chapter 7 bankruptcy, a trustee is assigned to the case and oversees paper work but in Chapter 13 bankruptcy the trustee also collects the payments and distributes them to your creditors.
DEBT IS HANDLED DIFFERENTLY IN THE CHAPTER 13 BANKRUPTCY LAWS
In Chapter 13 Bankruptcy laws you can stop foreclosure on your mortgage (if the proceedings aren't well on their way at filing time). Many times when a house is involved in bankruptcy there is equity involved. In Chapter 7 bankruptcy this would have to be considered for liquidation (usually).
In chapter 13 bankruptcy laws your repayment of debt is usually structured to be paid off by the end of the bankruptcy period. Mortgages are the only exception as many are 30 year loans. The mortgage is usually handled as a loan modification that is well worth the effort on its own. Significant reductions even with conventional loan modifications have been made.
With other types of secured debt (property secures the debt such as a car in a car loan) the rule is that if the property securing the loan is fairly new then the repayment plan must provide the creditor holding the claim to that property at least the value of that property.
If the property is older and has depreciated then the full amount of the debt left owing is owed.
Another type of debt in chapter 13 bankruptcy laws is called priority debt. It is the same as in Chapter 7 bankruptcy, you can not liquidate it and it has to be paid in full at the original way prescribed.
These debts which are actually obligations such as taxes due, government loans for education, child support.
The unsecured debt such as credit card debt and installment loans in the chapter 13 bankruptcy laws state that these debts need not be paid back in full as long as the disposable income of the debtor, projected over the commitment period of the bankruptcy, is used up and no more income is left than what would be expected if the debtor had filed a chapter 7 bankruptcy.
Disposable income according to the Chapter 13 Bankruptcy laws is all income minus child support received and minus all reasonable expenses necessary to support the debtor and his immediate family.
Charitable contributions and necessary and ordinary business expenses are also included if the debtorruns their own business.
So the amount of income left over after these deductions and projected over the period of the bankruptcy is the source used to develop the repayment plan. Many times the unsecured debt is paid at a reduced amount and in some cases not at all.
WHO IS ELIGIBLE UNDER THE CHAPTER 13 BANKRUPTCY LAWS
All individuals and the self employed of a sole proprietorship or unincorporated business. However there is a cap on the amount of debt owing at $336,900 for unsecured debt and $1,010,650 for secured debt.
The individual must not have filed for bankruptcy in the last 180 days (usually due to dismissal ). In order to file for chapter 13 bankruptcy just as in the chapter 7 the debtor must have completed a credit counseling course.
If there was a debt management plan developed during the counseling session that must be filed with the court along with the petition for the chapter 13 bankruptcy.
HOW THE CHAPTER 13 BANKRUPTCY IS CONDUCTED
When filing in the chapter 13 bankruptcy laws just as in filing the chapter 7 it starts with a petition to the court presiding over the jurisdiction of the debtors primary residence. The same list of schedules is required as in the chapter 7 being
- a schedule of assets and liabilities
- a current list of income and expenses
- a schedule of executory contracts and unexpired leases
- a statement of financial affairs ( a summary of all other financial statements)
- the certificate of credit counseling and any plan of repayment developed through the credit counseling
- evidence of payment from an employer received within 60 days of filing
- a statement of monthly net income and any expected increases or decreases in pay or expenses after filing.
- a record of any involvement in state or federally funded education or tuition accounts
The debtor must supply the case trustee with tax returns from the current year, those to be filed during the bankruptcy and any past years required of them.
The repayment plan should also be submitted at this time or within the next 14 days after the petition has been filed.
At this time the fees for filing are due and same rules apply as in the chapter 7.The filing fee and administrative fee are due day of filing, but there are provisions to pay in installments. If approved by the court they can be broken up into 4 payments the final payment no later than 120 days from the filing date.
The court may even extend the payments to no later than 180 days.There is no provision to waive the fees entirely as in the chapter 7 filing.
Failure to pay the fees is a cause for the case to be dismissed.
The information needed to complete the necessary forms to file for bankruptcy are.....
- a list of creditors with amounts owed and nature of any claims
- the debtors income and source of that income and the frequency it is received
- a list of all the debtor's property
- a detailed list of the debtors monthly living expenses
When married individuals are filing regardless of whether it is a jointly applied petition, both individuals income is considered as this income is used to evaluate the family household's financial standing.
Once the chapter 13 bankruptcy is filed a trustee is then appointed to the case. They will evaluate the case, oversee the paper work and collect payments from the debtor to distribute to their creditors.
Additionally the Automatic stay will go into effect in the chapter 13 bankruptcy laws as soon as the petition is filed.This will stop all collection activity against the debtor or his property.
The bankruptcy clerk gives notice to all the creditors listed in the bankruptcy case. All lawsuits, wage garnishments and telephone calls are stopped. There are certain types of actions that are not stayed (such as a lien) and in other cases they are only placed and effective for a short period of time (foreclosure).
The special automatic stay goes into effect at this time also.This is the stay that protects co-debtors and any collection attempts made to this person should stop only if the debt is consumer debt (personal, family or household debt)
Somewhere between 1 to 2 months a meeting of creditors will be scheduled. During this meeting the debtor will be asked questions about their financial situation and the terms of the plan proposed.
The debtor must attend this meeting and if a married couple is filing jointly they must both attend. (Another possible cause for dismissal)
Many times any problems with the plan developed can be corrected at or shortly after this meeting.
It is generally recommended that the debtor meet with the trustee before this meeting to ensure all information required is accurate and complete.
Following the meeting of creditors in the chapter 13 bankruptcy laws is a court hearing.This is a hearing on the proposed repayment plan developed. At this meeting the debtor, the trustee and any creditors who wish to be present will attend this court date.
DETAILS OF THE PLAN SUBMITTED
The plan must have been submitted at the time of the filing of the petition.
The repayment plan in the chapter 13 bankruptcy laws must list fixed payments either bi-weekly or monthly to be paid to the creditors through the trustee of the bankruptcy case. As noted above there are payments that cannot be changed some that may be slightly modified and those creditors who may receive lower payments than their claim states.
The plan may or may not be approved at this time and in either case the debtor must start making payments according to the plan submitted 30 days after the bankruptcy case.
Additionally any secured debt payments must be made if they are due within that 30 day window.
Within 45 days of the meeting of creditors the bankruptcy judge must decide and hold a confirmation hearing as to whether the plan is achievable and is within the standards of the chapter 13 bankruptcy laws.
Creditors will receive notice within 28 days and may object.
It is noted that the most frequent objections are that payments under the plan are less than if the debtor liquidated their assets (chapter 7) or that the plan submitted does not implement all the debtors disposable income.
If the plan is approved then it is put in force as soon as able or certainly by that same 30 day window.
If declined the debtor has either the option to change the plan payments or to change to a Chapter 7 bankruptcy (there is a fee charged (always a fee))
There is the chance that the court will not approve the plan or the modified plan and dismiss the case. The trustee will be allowed to keep some funds for costs and will return what has not been disbursed.
THIS is another reason why a competent attorney should be obtained. A well experienced bankruptcy attorney will know at your first meeting whether you have a case that will be approved or not (providing you get all required documents and information to them without any "surprises")
Changes in circumstances may also make modifications to the plan necessary. They may occur before the confirmation of the plan or may occur afterward.
And yet another possibility in the chapter 13 bankruptcy laws due to changing circumstances is the chapter 13 hardship discharge.
This may occur after the plan has been confirmed and payments have proceeded. When situations arise that are out of the debtors control and no fault of their own, a debtor may ask the court to grant a hardship discharge.
In this case the creditors must receive as much as they would in a chapter 7 case and there must be no possibility of modifying of the confirmed repayment plan.
Regardless of what circumstances occur, the debtor is obligated to make the plan work. Once a judge of the chapter 13 bankruptcy laws approves a repayment plan both the debtor and creditor are bound by those terms.
Once the plan is in place the debtor is obligated to make regular payments either directly to the trustee or through automatic deductions of their payroll check.
While the plan is in place the debtor retains all property that is secured as long as the payments are made to the trustee.The debtor may not add any additional debt without first consulting with the trustee. New debt can compromise the plan and possibly result in dismissal!!
The chapter 13 bankruptcy laws provide that if the debtor fails to keep up with the terms of the repayment plan the court may dismiss the case or convert it to a liquidation or chapter 7 bankruptcy.
Another cause for dismissal is if the debtor fails to keep payments on obligatory debt such as child support, alimony or tax filings.
During the confirmed repayment time the debtor must take a financial education course. This is mandatory and must be taken before a discharge can occur.
CHAPTER 13 BANKRUPTCY DISCHARGE
Once the payments in the confirmed repayment plan are completed according to the chapter 13 bankruptcy laws the debtor is entitled to a discharge as long as this following list is certified.
- All support payments due have been paid
- the debtor has not been discharged in a prior bankruptcy case within 2 years of a chapter 13 case and 4 years in chapter 7,11 or 12 cases.(usually this will have been established before your case proceeded but this is probably a double check)
- a copy of a certified completion of the debtors financial education course
The discharge releases the debtor from any debt that was disallowed by the plan (unsecured debt that was paid at an amount less than claimed by the creditor).
Creditors may no longer initiate collection attempts or legal action.
De bts that are not discharged in chapter 13 bankruptcy law
- long term debts such as a mortgage (though usually it is permanently modified)
child support, alimony, certain taxes - government funded education loans,
- most debts arising from crimes committed such as debt caused while driving intoxicated or on drugs restitution or criminal fines.
The following debt may be discharged....those arising from obtaining money or property under false pretenses, debt fraud, debt arising from a civil case that awarded others for malicious and willful actions the debtor committed resulting in injury or death to another....unless the creditor timely files and prevails in an action to have these debts declared not dis chargeable.
Other debts that can be discharged include debts incurred for willful and malicious acts of injury to property (not persons)debts incurred to pay not dis chargeable tax obligations debts arising from settlements in divorce or separation proceedings.
This information has been taken from the U.S. courts website where it is noted that the chapter 13 bankruptcy discharge is complex and has undergone many changes and furthermore strongly suggests consulting competent legal counsel in these proceedings.
Their website is U.S.courts
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