Bankruptcy: Chapter 13

 

 

Below, we have some FAQs about Chapter 13 bankruptcy. We plan to add worksheets to get you started. Please excuse the delay, our site is being redesigned to better serve your needs. See our Special Offers page to receive a free initial debt consultation.

 

FREQUENTLY ASKED QUESTIONS

 

What is Chapter 13, and how does it work?

Often called a ”wage earner’s plan,” Chapter 13 is that part of the federal bankruptcy laws, which permits a person to develop a plan to repay all or part of their debts, usually over a period of three to five years. During this time, creditors generally are forbidden by law from starting or continuing collection efforts.

 

A person who files under Chapter 13 is called a debtor. A person sharing debt liability with the debtor is called a co-debtor.

 

Do I qualify to file under Chapter 13?

Any individual, even if self-employed or operating an unincorporated business is eligible for Chapter 13 relief as long as the individual's debts and actions meet certain guidelines. Currently, to qualify for Chapter 13 Bankruptcy relief, the debtor’s secured debt cannot exceed $1,010,650.00, and unsecured debt cannot exceed $336,900.00.

 

In addition, to qualify for Chapter 13 relief, the debtor has to pass the “MEANS TEST,” which relates to the debtor’s annual gross income.

 

The amount depends on the size of the debtor’s family and the state the debtor resides in. If the debtor’s annual income exceeds the amount stated on the “MEANS TEST” the debtor may not qualify for Chapter 7 relief and may be required to file for Chapter 13 relief.

 

Also, the “MEANS TEST” determines whether debtor’s Chapter 13 reorganization plan will be a three year plan versus a five year plan.

 

A corporation or partnership may not be a Chapter 13 debtor.

 

May a husband and wife file jointly under Chapter 13?

Yes. A husband and wife may file a joint petition under Chapter 13 using the same set of forms. Only one filing fee is charged for a joint case. If both file individually, two sets of forms and two filing fees are required.

 

Are there advantages to filing Chapter 13, instead of Chapter 7?

Yes, there are significant advantages over liquidation under Chapter 7. Filing under Chapter 13 offers an opportunity to save one’s home from foreclosure, or one’s car from being repossessed, and to take care of back income taxes without having your wages garnished, or worse.

 

It also lets you reschedule certain debts over the life of the Chapter 13 plan, which may lower the payments.

 

Chapter 13 acts like a consolidation loan, where the debtor makes the plan payments to the plan trustee, who distributes those payments to creditors, keeping the creditors away from direct contact with the debtor.

 

Chapter 13 also contains a special provision to protect co-debtors from most creditors wishing to collect a “consumer debt,” (debts incurred for personal, as opposed to business, needs).

 

Will filing Chapter 13 affect my credit rating?

Yes, but probably not the way you'd think it might.  

 

Even if the situation is not your fault, like a sudden illness in the family — if you’re struggling with debt, falling behind with payments on your mortgage, car loans, credit cards, etc., your credit rating already needs serious repair.

 

Declaring bankruptcy is not going to make things worse, it’s a first step toward repairing your credit rating.

 

Chapter 13 gets rid of certain parts of your debt and lets you pay down the rest — often without interest — over time, without getting hassled on the phone by your creditors.

 

Filing for bankruptcy is a legal, federal protection. Once you’ve been through bankruptcy, you are freed to start rebuilding your credit rating.

 

Where does a Chapter 13 case get filed?

A Chapter 13 case is filed in the office of the Clerk of the Bankruptcy Court in the district in which you have lived for the greatest portion of the last 180 days. The Bankruptcy Court is a federal court and is a unit of the United States District Court.

 

Will my name be published if I file Chapter 13?

When a Chapter 13 case is filed, it becomes a public record, and the name of the debtor may be published by some credit-reporting agencies. However, newspapers do not usually report or publish the names of consumers who file under Chapter 13.

 

Will my employer be notified if I file Chapter 13?

No. Filing under Chapter 13 is not a criminal proceeding, and a person does not lose any civil or constitutional rights by filing.

 

May employers or government agencies discriminate
against me if I file under Chapter 13?

It is illegal for either private or governmental employers to discriminate against a person as to employment solely because that person has filed under Chapter 13. But it is possible to be fired for receiving too many personal phone calls. So another very practical benefit of filing for Chapter 13 is that it can stop embarrassing calls made by creditors to your place of work.

 

Does filing under Chapter 13 put a stop to lawsuits
and attachments that have already been filed against me?

The filing of a Chapter 13 case automatically stays, or stops, most lawsuits and attachments that have been filed against the debtor for payment due.

 

Shortly after a Chapter 13 case is filed, the court will mail a notice to all creditors that the debtor has provided to the court, ordering them to refrain from any further action against the debtor.

 

Will I lose all of my property if I file under Chapter 13?

Chapter 13 allows the debtor to keep property and pay debts over time, usually three to five years, using an approved repayment plan.

 

Under the state and federal bankruptcy laws, certain properties are declared to be exempt and cannot be taken by a person's creditors.

 

In a typical Chapter 13 a debtor is allowed to retain all of her or her property.

 

When must a person go to court in a Chapter 13 case, and what happens?

The first court appearance will be about a month after the case is filed for a hearing before the Chapter 13 Trustee, called the First Meeting of Creditors Hearing.

 

At this hearing, the debtor will be put under oath and questioned about his or her money, property and debts by the Chapter 13 Trustee.

 

In most Chapter 13 cases, none of their creditors appear at this hearing, but if a creditor does appear, he or she will be allowed to question the debtor.

 

Approximately 30 – 60 days after the First Meeting of Creditors Hearing, a plan confirmation is held before the Bankruptcy judge in the United States Bankruptcy Court.The debtor’s attorney is required to attend this hearing, however the debtor need not make an appearance.

 

What is a trustee in a Chapter 13 case, and what does a trustee do?

The Chapter 13 Trustee is an officer of the court, appointed to collect the debtor's monthly plan payments and make sure that the debtor is complying with all Chapter 13 Bankruptcy rules and procedures.

 

The Chapter 13 Trustee makes a recommendation to the judge on whether or not to confirm the debtor’s plan of reorganization.

 

Once the plan is confirmed, the Chapter 13 Trustee receives the debtor’s monthly payment and distributes that money to the debtor’s creditors pursuant to the approved plan of reorganization.

 

How long does a Chapter 13 case last?

A Chapter 13 case must last at least 36 months if the debtor is paying less than 100% of his or her creditors. The most a Chapter 13 reorganization can last is 60 months.

 

What is a Chapter 13 Discharge?

Bankruptcy law regarding a Chapter 13 discharge is complex and has recently undergone changes, so it is recommended to consult competent legal counsel prior to filing. In general, a Chapter 13 Discharge releases the debtor from all debts, either disallowed or provided for by the plan, with certain exceptions.

 

Some examples of exceptions (debts not discharged in Chapter 13) would be: remaining balances of home mortgages, child support or alimony, certain taxes, most guaranteed educational or government funded loans, and debts arising from causing personal injury from driving while intoxicated, etc.

 

Does Chapter 13 protect third parties who are liable with the debtor (co-signers)?

Chapter 13 contains a special provision to protect co-debtors from most creditors wishing to collect a “consumer debt,” (debts incurred for personal, as opposed to business, needs). This provision may protect co-signers.

 

What is the role of the attorney for a consumer debtor in a Chapter 13 case?

The debtor's attorney performs the following functions in a Chapter 13 case of a typical consumer bankruptcy:

 

1. Analyzes the amount and nature of the debts owed by the debtor and determines the best remedy for the debtor's financial problems.

 

2. Advises the debtor of the relief available under both Chapter 7 and Chapter 13 of the bankruptcy laws, and of the advisability of proceeding under each chapter.

 

3. Assembles the information and data necessary to prepare the Chapter 13 forms for filing.

 

4. Prepares the petitions, schedules, statement of financial affairs, the Chapter 13 plan of reorganization, and other Chapter 13 forms for filing with the Bankruptcy Court, and service on the Chapter 13 Trustee.

 

5. Assists the debtor in arranging his assets so that he or she can retain as many of them as possible while going through the Chapter 13 case.

 

6. Files the Chapter 13 petitions, schedules, statement of financial affairs, Chapter 13 reorganization plan, and other forms with the Bankruptcy Court and, if necessary, notifies certain creditors of the commencement of the case.

 

7. If necessary, assists the debtor in redeeming certain personal property and in setting aside certain mortgage liens on real property and or liens on personal property.

 

8. Attends the Chapter 13 First Meeting of Creditors Hearing with the debtor.

 

9. Attends the Chapter 13 Plan Confirmation Hearings in the Bankruptcy Court.

 

10. If necessary, prepares and files amended schedules, statement of financial affairs, and amended Chapter 13 plan, so as to comply with the Bankruptcy Court orders regarding confirmation of a Chapter 13 plan of reorganization.

 

11. If necessary, files modifications to the Chapter 13 plan to assist the debtor if the debtor’s financial conditions change during the three to five years the debtor is in the Chapter 13. reorganization.

 

Can I strip off a junior mortgage lien from my real property?

Yes, but only in a Chapter 13 proceeding and only if the fair market value of the property is less than what you currently owe on your first mortgage.

 

The fee paid or agreed to be paid to an attorney representing a debtor in a Chapter 13 case must be disclosed and approved by the Bankruptcy Court. The Court will allow the attorney to charge only a reasonable fee for representing the debtor. It is customary for the attorney to collect at least half of the fee before the case is filed with the balance of the fee being paid through the debtor’s Chapter 13 plan of reorganization. Currently the court is approving an attorney fee of $4,000.00 for a Chapter 13 filing.

 

en español (disponible pronto)