Chapter 13 Bankruptcy Background
A chapter 13 bankruptcy is usually called a wage earner’s plan. It permits people with routine salary to develop a strategy to repay all or part of their debts. Under this chapter, borrowers propose a repayment plan to make installments to lenders over three to five years. If the debtor’s current monthly income is less than the applicable state average wage, the plan will be for three years unless the court accepts a longer period “for cause.” If the debtor’s current monthly income is greater than the applicable state median, the plan typically must be for five years. No plan may a plan allow for installments over a period over five years. During this time the law obstructs collectors from begining or carrying forward actions.
Advantages of Chapter 13 Bankruptcy
Chapter 13 provides people a number of perks over liquidation under chapter 7. Possibly most significantly, chapter 13 offers people an opportunity to spare their residences from foreclosure. By filing under this chapter, people can stop foreclosure actions and may bring current overdue home loan monthly payments over time. Nevertheless, they must still make all mortgage payments that are expected to be made during the chapter 13 plan on time. Another benefit of chapter 13 is that it enables debtors to reschedule collateralizef financials obligations (other than a mortgage for their primary residence) and increase them over the life of the chapter 13 plan. Doing this may possibly lower the payments. Chapter 13 also has a very special provision that protects third parties who are bound with the debtor on “consumer debts.” This provision may safeguard co-signers. Finally, chapter 13 acts like a debt consolidation loan under which the debtor makes the plan payments to a chapter 13 trustee who then passes out payments to financial institutions. Debtors will have no direct contact with creditors while under chapter 13 protection.
Chapter 13 Eligibility
Any consumer, even if self-employed or running an unincorporated small business, is permitted for chapter 13 relief as long as the individual’s un-collateralized financial debts are less than $360,475 and secured financial debts are less than $1,081,400. These amounts are adjusted occasionally to follow changes in the consumer price index. A corporation or partnership may not be a chapter 13 debtor.
An individual can not file under chapter 13 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with directions of the court or was freely dismissed after lenders sought relief from the bankruptcy court to recover property where they hold security on properties.
In addition, no person may be a debtor under chapter 13 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, obtained credit counseling from a recognized credit counseling agency either in a personal or group briefing.
There are allowances in unexpected emergency circumstances or where the U.S. trustee (or bankruptcy administrator) has established that there are insufficient approved agencies to give the essential counseling. If a debt management plan is produced during required credit counseling, it must be registered with the court.
How Chapter 13 Works
A chapter 13 case begins by submitting a petition with the bankruptcy court taking care of the area where the consumer has a domicile or residence.
Unless the court orders otherwise, the debtor must also submit with the court:
schedules of assets and liabilities;
a schedule of current income and expenditures;
a schedule of executory contracts and unexpired leases; and
a statement of financial affairs.
The debtor must also file a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, gained 60 days before filing; a statement of monthly net income and any expected increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts.
The consumer needs to produce the chapter 13 case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case started).
A husband and wife may file a joint petition or individual petitions.
The courts needs to charge a $ 235 case filing fee and a $ 46 miscellaneous administrative fee. Normally the charges need to be paid to the clerk of the court upon filing. With the court’s agreement, nevertheless, they may be paid in installments.
The number of installments is restricted to four, and the debtor must make the final payment no later than 120 days after filing the petition.
If required, the court may draw out the time of any payment, as long as the last installment is paid no later than 180 days after filing the petition. Id. The debtor may also pay the $ 46 administrative expense in installments. If a joint petition is submitted, only one filing fee and one administrative fee are levied. Debtors should be aware that failing to remit these costs may result in dismissal of the case.
In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must compile the following information:
A list of all creditors and the balances and nature of their claims;
The source, balance, and frequency of the debtor’s income;
A listing of all of the debtor’s property; and
A detailed list of the debtor’s monthly living costs.
Married individuals must definitely put together this info for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the money and expenses of the non-filing spouse is needed so that the court, the trustee and creditors can review the household’s financial position.
When a person submits a chapter 13 petition, an impartial trustee is appointed to administer the case. In some districts, the U.S. trustee or bankruptcy administrator delegates a standing trustee to serve in all chapter 13 cases. The chapter 13 trustee both assesses the case and serves as a disbursing officer, acquiring payments from the consumer and making distributions to lenders.
Submitting the petition under chapter 13 “automatically stays” (quits) most collection stages against the debtor or the debtor’s property. Filing the petition does not, nonetheless, stay certain types of actions listed under 11 U.S.C. § 362 (b), and the stay may be effective solely for a short time in some situations. The stay occurs by process of law and demands no judicial action. As long as the stay is in effect, financial institutions commonly may not begin or maintain litigations, wage garnishments, or even make telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all lenders whose names and addresses are furnished by the debtor.
Chapter 13 additionally contains a wonderful automatic stay provision that safeguards co-debtors. Unless the bankruptcy court authorizes otherwise, a creditor may not seek to collect a “consumer debt” from any consumer who is bound along with the debtor. Consumer debts are those incurred by an individual primarily for a private, family, or household purpose.
Individuals may likely use a chapter 13 proceeding to protect their house from home foreclosure. The automatic stay ends the foreclosure proceeding as soon as the individual files the chapter 13 petition. The individual may at that moment make the past-due payments current over a reasonable period of time. Nonetheless, the debtor could still use up the home if the mortgage company finishes the foreclosure sale under state law before the debtor files the petition. The debtor may also lose the home if he or she fails to make the routine mortgage payments that are due after the chapter 13 filing.
In between 21 and 50 days after the individual files the chapter 13 petition, the chapter 13 trustee definitely will officiate a meeting of creditors. If the U.S. trustee or bankruptcy administrator organizes the meeting at a location that does not have routine U.S. trustee or bankruptcy administrator staffing, the meeting may be held no more than 60 days after the borrower files. In the course of this meeting, the trustee installs the debtor under oath, and both the trustee and creditors may ask questions. The debtor must attend the meeting and answer questions regarding his or her financial affairs and the proposed terms of the plan. If a husband and wife file a joint petition, they both must attend the creditors’ meeting and respond to questions. In order to shield their separate judgment, bankruptcy judges are prohibited from appearing at the creditors’ meeting. The participants normally fix troubles with the plan either during or shortly after the creditors’ meeting. Generally speaking, the debtor can prevent issues by making sure that the petition and plan are complete and accurate, and by consulting with the trustee before to the meeting.
In a chapter 13 case, to participate in distributions from the bankruptcy estate, unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. A governmental unit, however, has 180 days from the date the case is filed file a proof of claim.
After the meeting of creditors, the debtor, the chapter 13 trustee, and those creditors who wish to attend will come to court for a hearing on the debtor’s chapter 13 repayment plan.
The Chapter 13 Plan and Confirmation Hearing
Unless the court grants an extension, the borrower needs to file a repayment plan with the petition or inside 14 days after the petition is filed. A plan needs to be put forward for court endorsement and must provide for payments of preset amounts to the trustee on a regular basis, typically biweekly or monthly. The trustee then disperses the funds to creditors in accordance to the terms of the plan, which may offer creditors less than full payment on their claims.
There are three types of claims: priority, secured, and unsecured. Priority claims are those allocated very special status by the bankruptcy law, such as most levies and the fees of bankruptcy proceeding. Properly secured claims are those for which the lender has the right take back specific property if the consumer does not remit the underlying consumer debt. In contrast to secured claims, unsecured claims are normally those that the creditor has no special rights to collect against certain property owned by the debtor.
The plan needs to pay priority claims in full unless a particular priority creditor agrees to different treatment of the claim or, in the case of a domestic support obligation, unless the debtor adds all “disposable income” – talked about below – to a five-year plan.
If the borrower wants to maintain the collateral securing a certain claim, the plan must provide that the possessor of the secured claim receive at least the value of the collateral. If the obligation underlying the secured claim was made use of to buy the collateral, and the debt was acquired throughout specific time frames before the bankruptcy filing, the plan must provide for complete payment of the debt, not just the value of the collateral (which may be less due to depreciation). Payments to certain secured creditors, may be made over the original loan repayment schedule (which may be longer than the plan) so long as any balance due is made up throughout the plan. The debtor should consult an attorney to find out the proper treatment of secured claims in the plan.
The plan does not need pay unsecured claims in full as long it provides that the debtor will pay all forecasted “disposable income” over an “applicable commitment period,” and as long as unsecured creditors receive at least as much under the plan as they would receive if the debtor’s assets were liquidated under chapter 7.
In chapter 13, “disposable income” is earnings (other than child support payments received by the debtor) less amounts reasonably needed for the upkeep or support of the debtor or dependents and less charitable contributions up to 15 % of the debtor’s gross income. If the consumer runs a corporation, the definition of disposable income leaves out those amounts which are necessary for routine operating expenses.
The “applicable commitment period” depends on the debtor’s present monthly wages. The relevant commitment period have to be three years if current monthly income is less than the state median for a family of the same size – and five years if the current monthly income is greater than a family of the same size.
The plan may be less than the relevant commitment period (three or five years) only if unsecured debt is paid in full over a reduced period.
Within 30 days right after filing the bankruptcy case, even if the plan has not yet been approved by the court, the debtor must start making plan payments to the trustee.
If any secured loan payments or lease payments come due before the debtor’s plan is confirmed (typically residence and car or truck payments), the debtor needses to make suitable protection payments directly to the secured lender or lessor – subtracting the amount paid from the amount that would otherwise be paid to the trustee. Id.
No later than 45 days after the meeting of creditors, the bankruptcy judge must hold a confirmation hearing and decide whether the plan is practicable and meets the specifications for confirmation set forth in the Bankruptcy Code.
Creditors will receive 28 days’ notification of the hearing and may object to confirmation.
While an assortment of rejections may be made, the most frequent ones are that payments offered under the plan are less than creditors would obtain if the debtor’s assets were liquidated or that the debtor’s plan does not commit all of the debtor’s projected disposable income for the three or five year appropriate commitment period.
If the court confirms the plan, the chapter 13 trustee will distribute funds obtained under the plan “as soon as is practicable.”
If the court declines to confirm the plan, the debtor may file a reworked plan.
The debtor may also alter the case to a liquidation case under chapter 7. If the court declines to confirm the plan or the modified plan and instead dismisses the case, the court may affirm the trustee to keep some funds for costs, but the trustee must return all remaining funds to the debtor (other than funds already disbursed or due to creditors).
From time to time, a change in circumstances may compromise the debtor’s ability to make plan payments. For example, a lender may object or intimidate to object to a plan, or the debtor may inadvertently have failed to list all creditors. In such instances, the plan may be modified either before or after confirmation.
Modification after confirmation is not limited to an initiative by the debtor, but may be at the request of the trustee or an unsecured creditor.
Making the Chapter 13 Plan Work
The provisions of an established plan join the debtor and each creditor.
Once the court confirms the plan, the borrower must make the plan be successful. The debtor must make routine payments to the trustee either directly or through payroll deduction, which will require adjustment to living on a fixed budget for an extented period. Additionally, while confirmation of the plan entitles the debtor to retain property as long as payments are made, the debtor may not incur new debt without speaking with the trustee, because increased debt may compromise the debtor’s potential to complete the plan.
A debtor may make plan payments through payroll deductions. This practice increases the possibility that payments will be made on time and that the debtor will complete the plan. In any event, if the debtor fails to make the payments due under the confirmed plan, the court may reject the case or convert it to a liquidation case under chapter 7 of the Bankruptcy Code.
The court may also reject or convert the debtor’s case if the debtor fails to pay any post-filing domestic support obligations (i.e., child support, alimony), or fails to make required tax filings during the case.
The Chapter 13 Discharge
The individual bankruptcy law regarding the sphere of the chapter 13 discharge happens to be complicated and has recently gone through major modifications. As a result, debtors need to talk with knowledgeable legal advice prior to filing relating to the sphere of the chapter 13 discharge.
A chapter 13 borrower is entitled to a discharge upon completion of all repayments under the chapter 13 deal so long as the borrower: certifies (if appropriate) that all home support responsibilities that pertained due prior to making such accreditation have happened to be paid; has actually certainly not received a discharge in a before case filed within a specific time frame (two years for before chapter 13 situations and 4 years for prior chapter 7, 11 and 12 situations); and (3) has actually finalized an accepted method in financial management (if the USA trustee or bankruptcy supervisor for the debtor’s sector has actually established that such methods are available to the debtor).
The court will certainly certainly not get in the discharge, nevertheless, till it figures out, after notice as well as a hearing, that there happens to be no reason to believe there happens to be any sort of depending proceeding that might generate a restriction on the consumer’s homestead exemption.
The discharge releases the borrower from all personal debts fended for by the plan or disallowed (under area 502), with limited exceptions. Collectors fended for in total or in part under the chapter 13 plan may no a lot longer trigger or proceed any legitimate or further action from the borrower to gather the discharged obligations.
As a typical regulation, the discharge releases the consumer from all financial debts done for by the plan or disallowed, by having the exception of particular financial debts referenced in 11 U.S.C. § 1328. Financial debts certainly not discharged in chapter 13 provide certain prolonged phrase responsibilities (such as a property mortgage), personal debts for alimony or child support, particular taxes, personal debts for the majority of federal government cashed or ensured academic mortgages or benefit overpayments, personal debts arising from fatality or individual trauma generated by pushing while fascinated or under the impact of drugs, and personal debts for restitution or a criminal fine provided in a sentence on the debtor’s conviction of a crime. To the level that they happen to be certainly not perfectly paid under the chapter 13 deal, the borrower is going to still be accountable for these financial debts after the bankruptcy circumstances has ended. Personal debts for money or property acquired by bogus pretenses, financial debts for fraud or defalcation while acting in a fiduciary capacity, as well as debts for restitution or damages endowed in a civil situation for willful or detrimental activities by the borrower that induce private trauma or death to a person will certainly happen to be discharged unless a creditor reasonable files as well as dominates in an activity to need such financial debts declared nondischargeable.
The discharge in a chapter 13 circumstances is somewhat broader than in a chapter 7 case. Financial debts dischargeable in a chapter 13, yet not in chapter 7, incorporate debts for willful as well as malicious injury to property (as opposed to a person), debts incurred to pay nondischargeable tax obligations, as well as financial debts happening from premises settlements in divorce or separation processes.
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