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How does a
Chapter 13 bankruptcy begin?
 A chapter 13 case
begins by filing a petition with the bankruptcy court
serving the area where the debtor has a domicile or
residence. Unless the court orders otherwise, the debtor
must also file with the court: (1) schedules of assets
and liabilities; (2) a schedule of current income and
expenditures; (3) a schedule of executory contracts and
unexpired leases; and (4) 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, received 60 days before filing;
a statement of monthly net income and any anticipated
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
debtor must provide 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 began). Id. A husband
and wife may file a joint petition or individual
petitions.
What are the
Court fees for a Chapter 13 bankruptcy?
The courts must charge
a $235 case filing fee and a $39 miscellaneous
administrative fee. Normally the fees must be paid to
the clerk of the court upon filing. With the court's
permission, however, they may be paid in installments.
The number of installments is limited to four, and the
debtor must make the final installment no later than 120
days after filing the petition. For cause shown, the
court may extend the time of any installment, as long as
the last installment is paid no later than 180 days
after filing the petition. The debtor may also
pay the $39 administrative fee in installments. If a
joint petition is filed, only one filing fee and one
administrative fee are charged. Debtors should be aware
that failure to pay these fees may result in dismissal
of the case.
What
information do you need to file a Chapter 13 bankruptcy?
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:
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1. A list of all creditors and
the amounts and nature of their claims;
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2. The source, amount, and
frequency of the debtor's income;
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3. A list of all of the debtor's
property; and
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4. A detailed list of the
debtor's monthly living expenses, i.e.,
food, clothing, shelter, utilities, taxes,
transportation, medicine, etc.
Married individuals
must gather this information 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
income and expenses of the non-filing spouse is required
so that the court, the trustee and creditors can
evaluate the household's financial position.
When an individual
files a chapter 13 petition, an impartial trustee is
appointed to administer the case. In some districts, the
U.S. trustee or bankruptcy administrator appoints a
standing trustee to serve in all chapter 13 cases. The
chapter 13 trustee both evaluates the case and serves as
a disbursing agent, collecting payments from the debtor
and making distributions to creditors.
Filing the petition
under chapter 13 "automatically stays" (stops) most
collection actions against the debtor or the debtor's
property. Filing the petition does not, however, stay
certain types of actions listed under 11 U.S.C. §
362(b), and the stay may be effective only for a short
time in some situations. The stay arises by operation of
law and requires no judicial action. As long as the stay
is in effect, creditors generally may not initiate or
continue lawsuits, wage garnishments, or even make
telephone calls demanding payments. The bankruptcy clerk
gives notice of the bankruptcy case to all creditors
whose names and addresses are provided by the debtor.
Chapter 13 also
contains a special automatic stay provision that
protects co-debtors. Unless the bankruptcy court
authorizes otherwise, a creditor may not seek to collect
a "consumer debt" from any individual who is liable
along with the debtor. Consumer debts are those incurred
by an individual primarily for a personal, family, or
household purpose.
Individuals may use a
chapter 13 proceeding to save their home from
foreclosure. The automatic stay stops the foreclosure
proceeding as soon as the individual files the chapter
13 petition. The individual may then bring the past-due
payments current over a reasonable period of time.
Nevertheless, the debtor may still lose the home if the
mortgage company completes 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 regular mortgage payments that come due after the
chapter 13 filing.
Between 20 and 50 days
after the debtor files the chapter 13 petition, the
chapter 13 trustee will hold a meeting of creditors. If
the U.S. trustee or bankruptcy administrator schedules
the meeting at a place that does not have regular U.S.
trustee or bankruptcy administrator staffing, the
meeting may be held no more than 60 days after the
debtor files. During this meeting, the trustee places
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 answer questions. In
order to preserve their independent judgment, bankruptcy
judges are prohibited from attending the creditors'
meeting. The parties typically resolve problems with the
plan either during or shortly after the creditors'
meeting. Generally, the debtor can avoid problems by
making sure that the petition and plan are complete and
accurate, and by consulting with the trustee prior 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. The governmentt, however, has
180 days from the date the case is filed file a proof of
claim (they did write the laws, after all).
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.
What is a
Chapter plan and how is it approved?
Unless the court
grants an extension, the debtor must file a repayment
plan with the petition or within 15 days after the
petition is filed. A plan must be submitted for court
approval and must provide for payments of fixed amounts
to the trustee on a regular basis, typically biweekly or
monthly. The trustee then distributes the funds to
creditors according 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 granted special status by the
bankruptcy law, such as most taxes and the costs of
bankruptcy proceeding. (3) Secured
claims are those for which the creditor has the right
take back certain property (i.e., the
collateral) if the debtor does not pay the underlying
debt. In contrast to secured claims, unsecured claims
are generally those for which the creditor has no
special rights to collect against particular property
owned by the debtor.
The plan must 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 contributes all "disposable income" - discussed
below - to a five-year plan.
If the debtor wants to
keep the collateral securing a particular claim, the
plan must provide that the holder of the secured claim
receive at least the value of the collateral. If the
obligation underlying the secured claim was used to buy
the collateral (e.g., a car loan), and the debt was
incurred within certain time frames before the
bankruptcy filing, the plan must provide for full
payment of the debt, not just the value of the
collateral (which may be less due to depreciation).
Payments to certain secured creditors (i.e.,
the home mortgage lender), may be made over the original
loan repayment schedule (which may be longer than the
plan) so long as any arrearage is made up during the
plan. The debtor should consult an attorney to determine
the proper treatment of secured claims in the plan.
The plan need not pay
unsecured claims in full as long it provides that the
debtor will pay all projected "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 income (other than child support payments
received by the debtor) less amounts reasonably
necessary for the maintenance or support of the debtor
or dependents and less charitable contributions up to
15% of the debtor's gross income. If the debtor operates
a business, the definition of disposable income excludes
those amounts which are necessary for ordinary operating
expenses. The "applicable commitment period" depends on
the debtor's current monthly income. The applicable
commitment period must 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 applicable commitment period (three or
five years) only if unsecured debt is paid in full over
a shorter period.
Within 30 days 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 home and automobile
payments), the debtor must make adequate protection
payments directly to the secured lender or lessor,
deducting the amount paid from the amount that would
otherwise be paid to the trustee.
No later than 45 days
after the meeting of creditors, the bankruptcy judge
must hold a confirmation hearing and decide whether the
plan is feasible and meets the standards for
confirmation set forth in the Bankruptcy Code. Creditors
will receive 25 days' notice of the hearing and may
object to confirmation. While a variety of objections
may be made, the most frequent ones are that payments
offered under the plan are less than creditors would
receive 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
applicable commitment period.
If the court confirms
the plan, the chapter 13 trustee will distribute funds
received under the plan "as soon as is practicable." If
the court declines to confirm the plan, the debtor may
file a modified plan. The debtor may also convert 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 authorize 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).
Occasionally, a change
in circumstances may compromise the debtor's ability to
make plan payments. For example, a creditor may object
or threaten 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.
What must
the debtor do after confirmation?
The provisions of a
confirmed plan bind the debtor and each creditor. Once
the court confirms the plan, the debtor must make the
plan succeed. The debtor must make regular payments to
the trustee either directly or through payroll
deduction, which will require adjustment to living on a
fixed budget for a prolonged period. Furthermore, 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 consulting the trustee,
because additional debt may compromise the debtor's
ability to complete the plan.
A debtor may make plan
payments through payroll deductions. This practice
increases the likelihood 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 dismiss the case
or convert it to a liquidation case under chapter 7 of
the Bankruptcy Code. The court may also dismiss 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.
What is a
discharge; when does this all end?
The bankruptcy law
regarding the scope of the chapter 13 discharge is
complex and has recently undergone major changes. We
would need to discuss with you the scope of the chapter
13 discharge.
A chapter 13 debtor is
entitled to a discharge upon completion of all payments
under the chapter 13 plan so long as the debtor: (1)
certifies (if applicable) that all domestic support
obligations that came due prior to making such
certification have been paid; (2) has not received a
discharge in a prior case filed within a certain time
frame (two years for prior chapter 13 cases and four
years for prior chapter 7, 11 and 12 cases); and (3) has
completed an approved course in financial management (if
the U.S. trustee or bankruptcy administrator for the
debtor's district has determined that such courses are
available to the debtor). The court will not enter the
discharge, however, until it determines, after notice
and a hearing, that there is no reason to believe there
is any pending proceeding that might give rise to a
limitation on the debtor's homestead exemption.
The discharge releases
the debtor from all debts provided for by the plan or
disallowed, with limited exceptions. Creditors provided
for in full or in part under the chapter 13 plan may no
longer initiate or continue any legal or other action
against the debtor to collect the discharged
obligations.
As a general rule, the
discharge releases the debtor from all debts provided
for by the plan or disallowed, with the exception of
certain debts referenced in 11 U.S.C. § 1328. Debts not
discharged in chapter 13 include certain long term
obligations (such as a home mortgage), debts for alimony
or child support, certain taxes, debts for most
government funded or guaranteed educational loans or
benefit overpayments, debts arising from death or
personal injury caused by driving while intoxicated or
under the influence of drugs, and debts for restitution
or a criminal fine included in a sentence on the
debtor's conviction of a crime. To the extent that they
are not fully paid under the chapter 13 plan, the debtor
will still be responsible for these debts after the
bankruptcy case has concluded. Debts for money or
property obtained by false pretenses, debts for fraud or
defalcation while acting in a fiduciary capacity, and
debts for restitution or damages awarded in a civil case
for willful or malicious actions by the debtor that
cause personal injury or death to a person will be
discharged unless a creditor timely files and prevails
in an action to have such debts declared
nondischargeable.
The discharge in a
chapter 13 case is somewhat broader than in a chapter 7
case. Debts dischargeable in a chapter 13, but not in
chapter 7, include debts for willful and malicious
injury to property (as opposed to a person), debts
incurred to pay nondischargeable tax obligations, and
debts arising from property settlements in divorce or
separation proceedings
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