Chapter 13 Bankruptcy
A person may be eligible for Chapter 13 relief .
A Chapter 13 bankruptcy has many potential benefits. Depending on the facts of your case, it may stop a home foreclosure or vehicle repossession, stop a wage garnishment, and prevent future collection calls and creditor harassment. When we represent a client in a Chapter 13 bankruptcy case, we submit a financial debt repayment plan on their behalf to the bankruptcy court. The plan usually calls for the repayment of certain debts over a period of three or five years. For example, if you are past due on your mortgage payment, the plan would demonstrate how you will pay the past-due mortgage debts over the three- or five-year period. The bankruptcy trustee will review your case and determine if the proposed debt-restructuring plan is acceptable, and if so, the court will issue an order that your creditors must honor and obey.
What role does the Chapter 13 trustee play in the case?
The Chapter 13 trustee performs many roles. The trustee serves as a disbursing agent for payments under the plan. The trustee examines the debtor at the meeting of creditors. The trustee can also object to confirmation of the plan and makes a determination in each case whether the debtor has satisfied the disposable income test, the means test, and the best interest of creditors test. If one or more of these tests are not satisfactory, it is the trustee’s duty to object to confirmation. The trustee can also file a motion to dismiss the Chapter 13 case for a bad faith filing or for failure to make payments called for by the plan.
What is the meeting of creditors and what happens?
The meeting of creditors is a scheduled meeting conducted by the Chapter 13 trustee where the debtor is examined under oath concerning his assets and debts. Creditors who choose to attend the meeting either in person or through their attorney can ask questions concerning anything relevant to the case. As a practical matter, creditors rarely attend the meeting of creditors. The average meeting of creditors lasts about three to five minutes and is held approximately 30 days after the Chapter 13 bankruptcy petition is filed. It is mandatory for all debtors to attend the meeting of creditors. An attorney will accompany you to the hearing.
What is the disposable income test in Chapter 13?
In some cases the debtor must commit all of his net take-home pay to the plan for the life of the plan. In practice, this means that the plan payment plus reasonable and necessary living expenses must account for all the net take-home pay. If there is any net take-home pay leftover the extra income is dedicated to the unsecured creditors. If the unsecured creditors are paid in full, the disposable income test does not come into play in most cases. Your disposable income should be calculated by your attorney prior to filing your plan.
What is the best interest of creditors test in Chapter 13?
This test requires the debtor to make sure that under the Chapter 13 plan, the unsecured creditors receive at least as much under Chapter 13 as they would receive if the case were handled under Chapter 7. This involves completing a liquidation analysis on paper in order to determine what the unsecured creditors would receive under Chapter 7. The Chapter 13 plan must provide at least that much to the unsecured creditors. This analysis should be completed by your attorney.
When is the first plan payment due, who gets paid, and how are the payments made?
The first payment is due 30 days after the plan is filed. The payment is made by cashiers check or money order payable to the Chapter 13 trustee. The debtor’s name and case number must appear on the face of the check or money order. The payments are sent as instructed in a letter sent to the debtor by the Chapter 13 trustee at the beginning of the case.
Can I obtain credit while I am making payments on my Chapter 13 plan?
You must obtain permission from the Chapter 13 trustee or the court to incur new debt while you are in a Chapter 13 bankruptcy. It is difficult to get the trustee or the court to approve new credit until the plan is confirmed, which normally occurs two to three months after the case is filed. Even after confirmation, the procedure requesting the trustee or court approval is quite cumbersome: the trustee has a form that must be filled out and a current income and living expense analysis must be provided along with a copy of the financing arrangement for which approval is being sought. This also assumes that a lender has been found who is willing to loan money to an individual in a Chapter 13 bankruptcy.
Can the trustee or a creditor object to confirmation of a Chapter 13 Plan?
Yes. It is the trustee’s responsibility to object to Chapter 13 plans that are deficient. A creditor may also object, but generally most objections will come from the Chapter 13 trustee. Most objections are worked out or resolved prior to the confirmation hearing but occasionally the court has to take evidence and rule.
Can only one spouse file a Chapter 13 and stop foreclosure on a house owned by both spouses?
Yes. This occurs quite frequently. If one spouse does not need to be in bankruptcy other than for the foreclosure, then that particular spouse can be left out of the bankruptcy. Sometimes, we file Chapter 7 for one spouse and Chapter 13 for the other spouse. This permits the Chapter 7 spouse to get an automobile financed sooner. An attorney should be consulted concerning this type of situation.
What effect will a Chapter 13 have on a co-debtor who does not file bankruptcy?
The Chapter 13 will show-up on the non-filing co-debtors credit bureau report alongside of the joint debt. It won’t show in the public records section. If it is not a consumer debt or if it is a consumer debt but will not be paid in full under the Chapter 13 plan, the creditor may proceed against the non-filer.
What is a co-debtor stay?
If the joint debt is a consumer debt and the plan proposes to pay the debt in full, the creditor is blocked by the Chapter 13 filing from taking collection action against the non-filing co-debtor.
What happens if I inherit something during the three to five years that I am paying creditors under my Chapter 13 plan?
The inheritance must be turned over to the Chapter 13 trustee to be distributed to the unsecured creditors up to the extent of the allowed unsecured claims. If the potential exists for this to occur, you need to discuss the matter with an attorney to look at some options.
If my Chapter 13 does not work, can I convert the case to Chapter 7?
Yes. If the Chapter 13 plan cannot be amended to handle changes in your financial affairs, you may find it advisable to convert to Chapter 7. You should consult your attorney before taking any such action.
What if I previously filed a Chapter 13 but my case was dismissed – can I file another Chapter 13?
Under the new bankruptcy laws that went into effect in October 2005, if you have had a case pending within the 12 months of filing a new case, the automatic stay, which stops your creditors from taking actions to collect on your debts (i.e. foreclosure, repossession), is only in effect for 30 days. Within 30 days you must attend a hearing in front of a bankruptcy judge to explain why your previous case was dismissed and why your new case will be successfully completed. The court will determine whether or not to extend the automatic stay. However, if there are special circumstances which the court should be made aware of, we may be able to file an adversary proceeding in which we will be given the opportunity to explain your circumstances to the court and the court will decide whether or not to impose the stay.