Chapter 13 Bankruptcy
1.What is a chapter 13 bankruptcy case and how does it work?
A chapter 13 bankruptcy case is a proceeding under federal law in which the debtor seeks relief under chapter 13 of the Bankruptcy Code. Chapter 13 is the chapter of the Bankruptcy Code which allows a person to repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. The Bankruptcy Code is the federal law that deals with bankruptcy. A person who files a chapter 13 case is called a debtor. In a chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a percentage of his or her debts. The plan must be approved by the court to become effective. If the court approves the debtor's plan, most creditors will be prohibited from collecting their claims from the debtor. The debtor must make regular payments to a person called 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. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts.
2.How does a chapter 13 case differ from a chapter 7 case?
The basic difference between a chapter 7 case and a chapter 13 case is that in a chapter 7 case the debtor's nonexempt property (if any exists) is liquidated to pay as much as possible of the debtor's debts, while in chapter 13 cases a portion of the debtor's future income is used to pay as much of the debtor's debts as is feasible under the debtor's circumstances. As a practical matter, in a chapter 7 case the debtor may lose any nonexempt property they might have and receives a chapter 7 discharge, which releases the debtor from liability for most debts. In a chapter 13 case, the debtor usually retains his or her nonexempt property, but must pay off as much of his or her debts as the court deems feasible and receives a chapter 13 discharge.
3.When is a chapter 13 case preferable to a chapter 7 case?
Chapter 13 is usually preferable for a person who - (1) has valuable property securing debts which would be lost in a chapter 7 case (2) is not eligible under means testing to maintain a chapter 7 case, (3) is not eligible for a chapter 7 discharge, (4) wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time.
4.How does a chapter 13 case differ from a private debt consolidation service?
In a chapter 13 case, the bankruptcy court can provide relief to the debtor that a private debt consolidation service cannot provide. For example, the court has the authority to prohibit creditors from attaching or foreclosing on the debtor's property, to force unsecured creditors to accept a chapter 13 plan that pays only a portion of their claims, and to discharge a debtor from unpaid portions of debts. Private debt consolidation services have none of these powers.
5.What is a chapter 13 discharge?
It is a court order releasing a debtor from all of his or her dischargeable debts and ordering creditors not to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay.
6.What types of debts are not dischargeable in chapter 13 cases?
A full chapter 13 discharge granted upon the completion of all payments required in the plan discharges a debtor from all debts except:
(a) debts that were paid outside of the plan and not covered in the plan,
(b) debts for domestic support obligations, which includes debts for child support and alimony,
(c) debts for death or personal injury caused by the debtor's operation of a motor vehicle, vessel or aircraft while intoxicated,
(d) most tax debts,
(e) debts for restitution or criminal fines included in a sentence imposed on the debtor for conviction of a crime,
(f) debts for fraud, embezzlement or larceny,
(g) debts for student loans or educational obligations unless a court rules that not discharging the debt would impose an undue hardship on the debtor and his or her dependents,
(h) debts for damages caused by willful or malicious conduct by the debtor,
(i) installment debts whose last payment is due after the completion of the plan,
(j) debts incurred while the plan was in effect that were not paid under the plan,
(k) debts owed to creditors who did not receive notice of the chapter 13 case, and
(l) long-term debts upon which payments were made under the plan.
7.What is a chapter 13 plan?
It is a written plan presented to the bankruptcy court by a debtor that states how much money the debtor will pay to the chapter 13 trustee, how long the debtor's payments to the chapter 13 trustee will continue, how much will be paid to each of the debtor's creditors.
8.What is a chapter 13 trustee?
A chapter 13 trustee is a person appointed by the United States trustee to collect payments from the debtor, make payments to creditors in the manner set forth in the debtor's plan, and administer the debtor's chapter 13 case until it is closed.
9.What debts may be paid under a chapter 13 plan?
Any debts whatsoever, whether they are secured or unsecured. Even debts that are nondischargeable, such as debts for student loans or child support, may be paid under a chapter 13 plan.
10.Must all debts be paid in full under a chapter 13 plan?
No. While priority debts, such as debts for domestic support obligations and taxes, and fully secured debts must be paid in full under a chapter 13 plan, only an amount that the debtor can reasonably afford must be paid on most debts. The unpaid balances of most debts that are not paid in full under a chapter 13 plan are discharged upon the completion or termination of the plan.
11.Must all unsecured debts be treated alike under a chapter 13 plan?
No. If there is a reasonable basis for doing so, unsecured debts (or claims) may be divided into separate classes and treated differently. It may be possible, therefore, to pay certain unsecured debts in full, while paying significantly less on others.
12.How much of a debtor's income must be paid to the chapter 13 trustee under a chapter 13 plan?
Usually all of the disposable income of the debtor and the debtor's spouse for a 3 to 5 year period must be paid to the chapter 13 trustee. Disposable income is income received by the debtor and his or her spouse that is not deemed to be necessary for the support of the debtor and his or her dependents.
13.When must the debtor begin making payments to the chapter 13 trustee and how are the payments made?
The debtor must begin making payments to the chapter 13 trustee within 30 days after the chapter 13 case is filed with the court. The payments must be made regularly, usually on a weekly, bi-weekly, or monthly basis. If the debtor is employed, the court will require that the payments to be made directly to the chapter 13 trustee by the debtor's employer through wage assignment.
14.How long does a chapter 13 plan last?
The required length of a chapter 13 plan depends on the debtor's income. If the debtor's annual income is less than the median family income for the debtor's state and family size, the length of the plan must be 3 years, unless the debtor can justify a longer period, which may not exceed 5 years. If the debtor's annual income exceeds the median family income, the length of the plan must be 5 years unless all unsecured claims can be paid off in a shorter period.
15.Is it necessary for all creditors to approve a chapter 13 plan?
No. To become effective, a chapter 13 plan must be approved by the court, not by the creditors.
16.What is the difference between a secured creditor and an unsecured creditor?
In simple terms, a secured creditor has collateral for its claim and an unsecured creditor does not. The basic difference is that a secured creditor may collect all or a portion of its claim from its collateral, while an unsecured creditor may not. It is common for the amount of a secured creditor's claim to exceed the value of its collateral. This type of creditor is called a partially-secured (or undersecured) creditor.
18.How are cosigned or guaranteed debts handled in chapter 13 cases?
A cosigned or guaranteed debt is a debt of the debtor that has been cosigned or guaranteed by another person. If a cosigned or guaranteed consumer debt is being paid in full under a chapter 13 plan, the creditor may not collect the debt from the cosigner or guarantor. However, if a consumer debt is not being paid in full under the plan, the creditor may collect the unpaid portion of the debt from the cosigner or guarantor. A consumer debt is a nonbusiness debt. Creditors may collect business debts from cosigners or guarantors even if the debts are to be paid in full under the debtor's plan.
19.Who is eligible to file a chapter 13 case?
Any individual (i.e., natural person) is eligible to file a chapter 13 case if he or she - (1) resides in, does business in, or owns property in the United States, (2) has regular income, (3) has unsecured debts of less than $307,675, (4) has secured debts of less than $922,975, (5) is not a stockbroker or a commodity broker, (6) has not intentionally dismissed another bankruptcy case within the last 180 days, and (7) has received a briefing from an approved credit counseling agency within the last 180 days. Corporations, partnerships, limited liability companies, and other business entities are not eligible to file a chapter 13 case.
20.When should a husband and wife file a joint chapter 13 case?
If both spouses are liable for any significant debts, they should file a joint chapter 13 case, even if only one of them has income.
21.May a self-employed person file a chapter 13 case?
Yes. A self-employed person meeting the eligibility requirements may file a chapter 13 case. A debtor engaged in business may continue to operate the business during his or her chapter 13 case.
22.May a chapter 7 case be converted to a chapter 13 case?
Yes. An existing chapter 7 case may be converted to a chapter 13 case at any time at the request of the debtor if the case has not previously been converted from chapter 13 to chapter 7.
23.Where is a chapter 13 case filed?
A chapter 13 case is filed in the office of the clerk of the bankruptcy court in the district where the debtor has lived or maintained a principal place of business 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.
24.What fees are charged in a chapter 13 case?
There is a $274 filing fee charged when the case is filed, which may be paid in installments if necessary. In addition, the chapter 13 trustee assesses a fee of 10 percent on all payments made by the debtor under the plan. Thus, if a debtor pays a total of $5,000 under a chapter 13 plan, the total amount of fees charged in the case will be $689 (a $500 trustee's fee, plus the $189 filing fee). These fees are in addition to the fee charged by the debtor's attorney.
25Will a person lose any property if he or she files a chapter 13 case?
Usually not. In a chapter 13 case, creditors are usually paid out of the debtor's income and not from the debtor's property
How does the filing of a chapter 13 case affect collection proceedings and foreclosures that are filed against the debtor?
The filing of a chapter 13 case automatically stops all lawsuits, attachments, garnishments, foreclosures, and other actions by creditors against the debtor or the debtor's property. This is called the automatic stay. A few days after the case is filed, the court will mail a notice to all creditors advising them of the automatic stay. Certain creditors may be notified sooner, if necessary. Most creditors are prohibited from proceeding against the debtor during the entire course of the chapter 13 case. If the debtor is later granted a chapter 13 discharge, the creditors will then be prohibited from collecting the discharged debts from the debtor after the case is closed. If the debtor has had a prior bankruptcy case dismissed within the past year, he or she may be denied the protection of the automatic stay.
26.May a person whose debts are being administered by a financial counselor file a chapter 13 case?
Yes. A financial counselor has no legal authority to prevent a person from filing any type of bankruptcy case, including a chapter 13 case.
27.Are the names of persons who file chapter 13 cases published?
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 publish the names of persons who file chapter 13 cases.
28.Is a person's employer notified when he or she files a chapter 13 case?
In most cases, yes. However, if there are compelling reasons for not informing an employer in a particular case, it may be possible to make other arrangements for the required information and payments.
29.Does a person lose any legal rights by filing a chapter 13 case?
No. A chapter 13 case is a civil proceeding and not a criminal proceeding. Therefore, a person does not lose any legal or constitutional rights by filing a chapter 13 case.
30.May employers or government agencies discriminate against persons who file chapter 13 cases?
No. It is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed a chapter 13 case. It is also illegal for local, state, or federal governmental agencies to discriminate against a person as to the granting of licenses, permits, student loans, and similar grants because that person has filed a chapter 13 case.
31.What is required for court approval of a chapter 13 plan?
The court will approve and confirm a chapter 13 plan if it finds that: (1) all required fees, charges and deposits have been paid, (2) all priority claims will be paid in full under the plan, (3) if the plan creates different classes of claims, it provides the same treatment for each claim within a particular class, (4) the plan was proposed in good faith, (5) each unsecured creditor will receive under the plan at least as much as it would have received had the debtor filed a chapter 7 case, (6) the debtor will be able to make the required payments and comply with the plan, and (7) each secured creditor is dealt with properly.
32.What is a priority claim?
A priority claim is an unsecured claim that is given priority of payment under the Bankruptcy Code. It is a claim that must be paid before other unsecured claims are paid. Examples of priority claims are tax claims, wage claims, and claims for alimony, maintenance or support. Claims for administrative fees, such as the chapter 13 trustee's fee, the filing fee, and the fee of the debtor's attorney, are also priority claims in chapter 13 cases.
33.What if the court does not approve a debtor's chapter 13 plan?
If the court will not approve the plan initially proposed by a debtor, the debtor may modify the plan and seek court approval of the modified plan. If the court does not approve a plan, it will usually give its reasons for refusing to do so, and the plan may then be appropriately modified so as become acceptable to the court. A debtor who does not wish to modify a proposed plan may either convert the case to a chapter 7 case or dismiss the case.
34.How are the claims of unsecured creditors handled in chapter 13 cases?
Unsecured creditors, including those with priority claims, must file their claims with the bankruptcy court within 90 days after the first date set for the meeting of creditors in order for their claims to be allowed. Unsecured creditors who fail to file claims within that period are barred from doing so, and upon completion of the plan their claims will be discharged.
35.What if the debtor is temporarily unable to make the chapter 13 payments?
If the debtor is temporarily out of work, injured, or otherwise unable to make the payments required under a chapter 13 plan, the plan can usually be modified so as to enable the debtor to resume the payments when he or she is able to do so. If it appears that the debtor's inability to make the required payments will continue indefinitely or for an extended period, the case may be dismissed or converted to a chapter 7 case.
36.What is the role of the debtor's attorney in a chapter 13 case?
The debtor's attorney performs the following functions in a typical chapter 13 case:
(1) Examining the debtor's financial situation and determining whether a chapter 13 case is a feasible alternative for the debtor, and if so, whether a single or a joint case should be filed.
(2) Assist the debtor in obtaining the required prebankruptcy briefing on budget and credit counseling.
(3) Assisting the debtor in the preparation of a budget.
(4) Examining the liens or security interests of secured creditors to ascertain their validity or avoidability.
(5) Devising and implementing methods of dealing with secured creditors.
(6) Assisting the debtor in devising a chapter 13 plan that meets the needs of the debtor and is acceptable to the court.
(7) Preparing the necessary pleadings and chapter 13 forms.
(8) Filing the chapter 13 forms and pleadings with the court.
(9) Attending the meeting of creditors and any other court hearings required in the case.
(10) Assisting the debtor in obtaining court approval of a chapter 13 plan.
(11) Assisting the debtor in overcoming any legal obstacles that may arise during the course of the case.
(12) Assisting the debtor in attending and completing the required instructional course on personal financial management.
(13) Assisting the debtor in obtaining a discharge upon the completion or termination of the plan.
The fee charged by an attorney for representing a debtor in a chapter 13 case must be disclosed to the bankruptcy court.