Chapter 13 Bankruptcy

A Chapter 13 bankruptcy case provides the debtor a chance to reorganize and adjust their finances to pay their creditors all or some of the money owed.  This is accomplished by submitting a plan to the bankruptcy court setting forth the payments that the debtor will make to the creditors over the next 3 to 5 years.  This allows the debtor to move forward without liquidating any assets and having the confidence that, if he or she fulfills the obligations under the plan, the debtor receives a discharge of their debts even if the plan only provides for a payment of a portion of the total debt.

General Concepts

Discharge of Debts. Upon the completion of the plan, the debtor receives a discharge of most, if not all, of their debts.  This gives debtors a second chance and a new beginning.  After the discharge is granted, creditors cannot take any further action to collect the discharged debt personally against the debtor.

Eligibility. A Chapter 13 bankruptcy is for individuals with “regular income” which could include a salary, or recipients of alimony, support payments, or any regular type of income.  The debtor als must have debts below $336,900 unsecured debt and $1,010,650 secured debt.

Automatic Stay. Once the petition is filed, an automatic stay is immediately effective and creditors are not allowed to communicate with debtor.  Creditors must stop all collection efforts and are not allowed to seize any property of the debtor.  Therefore, any potential repossessions, attachments, foreclosures, utility shut-offs, property tax sales and evictions are put on hold.

Exempt Property. In conjunction with the bankruptcy filing, debtors are allowed to keep ownership of certain property after the bankruptcy.  This concept is called an exemption of property and gives the debtor a chance to move forward after the bankruptcy with certain property.

Debtor’s Chapter 13 Plan. The debtor’s plan sets forth the payments to be paid to the creditors over a 3 to 5 year period.  The plan will calculate the debtor’s diposable income and determine how much should be paid to the creditors.  The creditors will receive a share of the payments made under the plan.  Sometimes, the creditors will only be paid 5% to 20% of the amounts they are actually owed pursuant to the plan.    The debtor’s plan usually requires the debtor to make monthly payments to the bankruptcy trustee.  The trustee will subsequently distribute the money to the creditors.  After the completion of the plan, the debts of the debtor will be discharged.

TIMELINE

Pre-filing credit counseling within 180 days before filing. One result of the amendments to the Bankruptcy Code in 2005 is the requirement that a debtor receive counseling from an approved credit counseling agency within 180 days before a bankruptcy filing.  The credit counseling agency must be approved by the United State Trustee Program for the jurisdiction that you are filing.  The costs are $30 to $50.

File petition. After an initial consultation, we will review all relevant documents and then prepare a Chapter 13 bankruptcy petition to be filed on your behalf.

Meeting of Creditors or Section 341 Meeting. Approximately 30 days after your petition is filed, you will have a meeting with the trustee in charge of your filing.  This meeting is called the meeting the creditors even though creditors do not generally show up.  The meeting of creditors allows the trustee and other interested parties to ask questions about your financial situation.  The Chapter 13 trustee will also review the debtor’s plan.

Confirmation Hearing. Between 20 and 45 days after the meeting of creditors, the bankruptcy court will evaluate the debtor’s plan at a confirmation hearing.

Plan Payments. Within 30 days after the filing of the petition, the debtor usually begins making the plan payments to the trustee.

Post-filing credit counseling. Prior to the last payment under the debtor’s plan, you must attend a post-filing course of personal financial management (similar to the pre-filing credit counseling) and file a certification of completion of the course.

Discharge granted. Upon completion of the plan payments, the trustee will submit a final report and you will be granted a notice of discharge.