Also referred to as a wage earner’s plan, a chapter 13 bankruptcy lets those individuals who have a steady source of income to create a realistic plan to pay back all of the money that they owe to their creditors. This is done in monthly installments over the space of anywhere between 3 and 5 years. Where the debtors monthly income amount is lower than that of the state average, the repayment plan created will be over a 3 year time period – unless a longer time scale is approved by the courts. However, if the monthly income of the debtor is above that of the state average then all of the money must be paid back over a 5 year term. In no circumstance can the time period for paying creditors back extend past 5 years. During this time, creditors are not allowed to start or continue their collection efforts.

Chapter 13 Advantages

A Chapter 13 bankruptcy provides individuals with several advantages in contrast to liquidation as per a chapter 7 bankruptcy. The main one of these being the fact that it allows them to keep their home and stop it from foreclosure. By filing a bankruptcy under chapter 13 it protects them from foreclosure proceedings, thus stopping missed mortgage payments. Nonetheless, debtors are still required to make all of their mortgage payments during the time that they are on the repayment plan. A further advantage of this type of bankruptcy is that debtors are able to reschedule any secure debts that they may have and extend them beyond the life of the repayment plan – this does not include a mortgage. By doing this, it will likely lower the size of the payments that the individual has to pay back. It also provides a special provision which works to protect those third parties that are liable along with the debtor via ‘consumer debts’. Thanks to this provision, co signers are fully protected. A chapter 13 bankruptcy acts like a loan consolidation service, whereby the debtor makes all payments to a trustee who is then responsible for distributing all of the payments to the creditors. This way individuals have no direct contact with their creditors. 

Eligibility for A Chapter 13

All individuals, including those that work under an unincorporated business or are self employed, are eligible to file for a chapter 13 bankruptcy – providing that their debts are unsecured and total are valued at an amount that is lower than $394,725. Where an individual has debts that are secured, these must be less than $1,184,200. These amounts do change in line with the consumer price index (CPI) in order to take in changes in the rate of inflation. A partnership nor a corporation is eligible to file for a chapter 13.

Those individuals that dismissed previous petitions of bankruptcy through not complying with orders or appearing in the courts in the 180 days prior, are not eligible to file for a chapter 13 bankruptcy. Additionally, no individual is able to become a debtor if they have, before 180 days proper to filing, received any sort of credit counseling through an agency in either s group or individual briefing capacity. In some certain emergency situations there are exemptions to this rule, such as there not being enough agencies that are approved to deliver the counseling. 

How A Chapter 13 Bankruptcy Works

First of all a petition must be filed with the individual’s local bankruptcy court. This must include schedules of any liabilities and / or assets, schedules of expenditures and incomes, schedules of any unexpired leases and executory contracts, along with a financial affairs statement – unless the courts say otherwise. The debtor is also required to provide evidence of a repayment plan for their debt created via credit counseling and to  file a credit counseling certificate. Finally, they must also give proof of any payments that they have received from any employer 60 days prior to filing, a record of tuition accounts or state qualified accounts, and a statement showing monthly income. It is also a requirement that the individual provides the trustee with evidence of their most recent tax return, including any that have been filed throughout the duration of the case. A married couple have the option of either filing an individual petition each or a joint petition.

There is a $235 fee that comes with filing a chapter 13 bankruptcy petition, along with a $75 administration fee and are payable to the court clerk when a first filed. If required and with the permission of the courts, these fees can be paid over an agreed period of time in monthly installments. However, these installments are limited to just 4 and the final payment cannot be made any later than 120 days from when the first filed the petition. In some instances, this can be extended to 180 days from filing. Not paying these fees will result in the case being dismissed altogether. If this happens to you, Sasser Law Firm may be able to help if there were extenuating circumstances for why you did not pay on time. 

From the paper work that is submitted to file a chapter 13 bankruptcy, there must be a full and comprehensive list of all the creditors that are owed money and how much these amounts are, the amount and source of any income earned, details of any property / properties owned, and details relating to living expenses, e. g. utilities, transportation, food, shelter, medicine, clothing, taxes etc.

Those individuals who are married must provide certain information regarding their other half even if they are filing an individual petition and not a joint one. This is so that the creditors, the trustee, and the courts can all evaluate the state of the household’s overall financial standing.

Where a chapter 13 is filed by an individual debtor, a trustee who is completely impartial is appointed to the case to administer it. It is the job of the trustee to not only serve as an agent for distributing but as an evaluator of the case, collecting all of the payments from off of the debtor and distributing them out to the various creditors there are. 

By filing a bankruptcy petition for a chapter 13, it automatically stops all collection actions that are currently against the individuals or any of their properties. However, in some certain situations, this stop may only be temporary, for a short period of time. The stop comes into play by fact of law and so there does not need to be any sort of judicial action. For the entire time that this is in place, a creditor is not permitted to start or even continue garnishment of wages, lawsuits, or so much as call the debtor requesting payment. Each and every creditor is made aware of this situation by a bankruptcy clerk.

Some 21 to 50 days from after filing a chapter 13, the trustee will arrange meetings with each and every creditor that there is. In some certain circumstances, like when the meeting is scheduled in a location where there are no bankruptcy administration staff, then a meeting can be held in excess of 60 days from the date of filing. In these meetings, the trustee in charge subjects the debtor to an oath, thus allowing both the creditors and the trustee to ask questions that must be answered truthfully. The debtor is asked questions pertaining to their current financial situation and the terms of their repayment plan. Where a joint petition has been filed then both individuals are required to attend these meetings. Bankruptcy judges do not attend these meetings so that they can preserve their judgement and remain impartial. 

Once these meetings with creditors have been performed, a court hearing will commence with all relevant parties in attendance where the full details of the repayment plan are heard and agreed.   

Confirmation Hearing And Repayment Plan

Where an extension has not been granted by the courts, debtors must file their repayment plan along with their chapter 13 bankruptcy petition or up to 14 days after doing so. The plan should cover fixed amount payments that go to the trustee on regular and agreed terms. Upon receiving these monies, the trustee then distributes them to all of the creditors in agreement with the repayment plan. In some circumstances this may actually give creditors less than what they are fully owed from the debtor.

For creditors there are three different types of claims. These are unsecured, secured, and priority. Where a creditor does not have any sort of special rights for collecting on property that the debtor owns, this is classed as an unsecured claim. In contrast, a secured claim is one that the creditor does have a right to and is allowed to take back in the case where the debtor does not pay back the debt that they owe. Priority claims are granted special status and include things such as bankruptcy proceeding costs and taxes. As part of any repayment plan, a debtor is required to pay back all priority claims in full.

In contrast to this, a debtor is not legally required to pay back all unsecured claims that are brought against them in full – providing they are already using all of their available disposable income to pay back their debts. Disposable income is considered to be the full income amount received minus any payments for support dependents and contributions made to charity. At most this is allowed to equate up to 15 percent of the debtors overall income received. Where a debtor runs a business, then disposable income does not include any amounts required for the day to day operations of the business.

After 30 days of filing a bankruptcy case, a debtor is required to start sending payments to the trustee – this is true even if the repayment plan has not at the time been approved. Where secured lease or loan payments are required prior to the repayment plan being approved, payments must be sent directly to the lessor or lender. This amount is then taken off of what would have otherwise been paid directly to the trustee. 

Some 45 days from the date that the meeting with creditors was held, a confirmation hearing is held by the bankruptcy judge to decide whether or not the repayment plan is a feasible one and is in line with all of the necessary standards as set out in the Bankruptcy Code. Each and every creditor will receive a notice 28 days prior to the hearing, where they have the option to object to the confirmation. The most common objections that creditors usually make at these hearings is in relation to the amount of money they will receive is actually less than if the debtor was to go into liquidation. Equally, many also raise concerns that the debtor is not committing all of their disposable income over the 3 to 5 year period to pay back all of what they owe.

Where the repayment plan is confirmed by the courts, it is then the responsibility of the appointed trustee to distribute the funds received for the debtor to all of the creditors as soon as they can. Where the courts do not confirm the plan, the debtor is then required to submit a new one that has been completely modified and changed. If they so wish, it is at this point that the debtor has the option of changing to a chapter 7 case and file for liquidation instead. 

It can be sometimes the case that a change in the debtors circumstances can and does compromise their ability to make the repayments as set out in plan. Where this happens, the debtor can request a hardship discharge. However, this is not available to everyone and can only be granted under special circumstances, such as where modifying the repayment plan is simply not a possibility. A hardship discharge does not apply to those debts that in a chapter 7 case are considered to be none dischargeable. 

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