CHAPTER 13 BANKRUPTCY

  Chapter 13 is a court proceeding under the Bankruptcy Code.  In order for a debtor to file under a Chapter 13, you must have a regular source of income and have enough disposable income to fund your Chapter 13 plan.  The plan is reviewed and must be approved by the court to become effective.  The exact amount to be paid to the creditors is determined by several factors including the debtor’s regular and disposable income.  The debtor must make regular plan payments to 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.  Once you have completed your repayment plan and have attended money management classes, the debtor will be released of the liability of their dischargeable debts.

QUALIFYING FOR CHAPTER 13 BANKRUPTCY

  In order to qualify for Chapter 13, under the Bankruptcy code, you must be employed or have another source of regular income.  You also must have disposable income in excess of your living expenses in order to pay to pay a portion of your debts to your creditors.  The debtor must have the ability to propose a feasible, in good faith, Chapter 13 repayment plan.  A Chapter 13 plan lays out the debtor’s plan of action to repay their debts over a period of 3-5 years.  Prior to filing a Chapter 13, a debtor must receive credit counseling from an “approved nonprofit budget and credit counseling agency” within 180 days of filing your Chapter 13 petition with the bankruptcy court.  If considering filing for a Chapter 13 bankruptcy, we suggest that you speak to a bankruptcy attorney who will help determine if you qualify.

CHAPTER 13 BANKRUPTCY PROCESS

  The Chapter 13 process takes 3-5 years to complete from the filing of the original Chapter 13 petition.  The petition is filed with the bankruptcy court in your district.  Once the petition is filed, the “automatic stay” takes place, which halts the debtor’s creditors from taking further collection efforts, including foreclosure/sheriff sales and repossessions from taking place.  The bankruptcy clerk assigns the debtor a judge, a trustee, and a case number.  The clerk will then mail a notice of the bankruptcy to the creditors.  Once the petition is filed, the debtor must begin making payments to the Chapter 13 trustee within 30 days and continue the payments until the planned repayments are complete or risk the case being dismissed.

The debtor will be required to appear at the Section 341 Meeting of Creditors about 4-6 weeks after the petition is filed.  The trustee will review the petition, schedules, statement of financial affairs and income statements. The trustee is there to make sure everything has been filed correctly and to make sure that debtor has the disposable income to pay into the plan. 

Approximately 3 months after your case is filed, the Bankruptcy Court will conduct a confirmation hearing to determine whether the proposed Chapter 13 plan is feasible and includes the required elements.  If the creditor’s have any objections to the proposed plan they will bring them before the court and will be resolved before the case can be confirmed.  The court will generally confirm the Chapter 13 plan if all provisions of the Bankruptcy Code are met:  filing fees have been paid; the plan has been proposed in good faith; unsecured creditors will receive at least the amount to which they would be entitled to in a Chapter 7; secured creditors will receive their collateral or the amount of their claim with interest; the bankruptcy schedules indicate that the debtor can make all of the proposed plan payments; and the trustee recommends the plan be confirmed.

If the plan is confirmed, the debtor must complete the 3-5 year repayment plan in order to be released from the liability of the dischargeable debts.  If the debtor does not complete the repayment plan then the case may be dismissed or converted to a Chapter 7.  In addition to completing the repayment plan, the debtor must attend money management classes.

BENEFITS OF FILING FOR CHAPTER 13 BANKRUPTCY

PREVIOUS BANKRUPTCY FILINGS

Are you able to file another bankruptcy if you have filed a Chapter 13 in the past?  A debtor cannot receive a discharge in a Chapter 13 if the debtor received a discharge in a prior Chapter 7, 11 or 12 within the past 4 years.  Moreover, the debtor may not have had a discharge in a Chapter 13 case within the previous 2 years. 

CHOOSING CHAPTER 13 OVER CHAPTER 7

Chapter 13 may work better for a person who:

These are just some of the reasons a Chapter 13 may work better for you than a Chapter 7.  To further discuss your options seek the advice from an experienced bankruptcy attorney.

ROLE OF CHAPTER 13 TRUSTEE

  The role of the Chapter 13 trustee is to preside at the Section 341 Meeting of Creditors; review the debtor’s plan for compliance with bankruptcy code; make a recommendation to the bankruptcy court whether or not the plan is feasible and filed in good faith; accept debtor’s payment and distribute them to the appropriate creditor’s; report to the court any delinquencies in the debtor’s plan payments; and keep records and file reports for the court. 

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If you have any further questions on bankruptcy or are thinking about filing a bankruptcy contact a bankruptcy attorney by calling us or by completing the brief free legal evaluation.