Chapter 13 Bankruptcy

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What is Chapter 13 Bankruptcy?
A Chapter 13 Bankruptcy is also known as a “Wage Earner’s Plan”. A Chapter 13 is used primarily for its advantages over a Chapter 7 liquidation. A debtor chooses Ch.13 to enter a plan to repay all or part of their debt over 3 to 5 years. During this period, creditors are not allowed to have direct contact with you.

What Are the Advantages of Filing Chapter 13?
One of the most important reasons debtors choose to file for a Chapter 13 is because it acts to halt foreclosure proceedings. Another important advantage is that filing acts as a loan consolidation because a trustee acts as a medium collecting money and distributing it amongst all of your creditors. Further, because the repayment plan lasts for 3 to 5 years, payments on loans are likely to be reduced.

Who Can File for Chapter 13?
Only individuals (and not corporations) may file for Chapter 13 who owe, on the date of the filing unsecured debts of less than $336,900 and secured debts of less than $1,010,650. 11 U.S.C. § 109(e).

Further, approved credit counseling must have been completed in the 180 days prior to filing for bankruptcy. 11 U.S.C. §§ 109, 111. Any debt repayment plan constructed during such program must be must be filed with the court.

What Happens After I file a Chapter 13 Bankruptcy?
After filing the petition and schedules with the court a trustee is assigned to evaluate your case and also act as agent collecting payments from you and distributing them to your creditors. 11 U.S.C. § 1302(b). Among other schedules and paperwork, the debtor must also file a certificate of credit counseling. 11 U.S.C. § 521.

As soon as the petition is filed, debtors also enjoy an automatic stay, which arises as an operation of law and acts to prevent almost all creditors from contacting you or attempting to collect. 11 U.S.C. § 362. The automatic stay also prevents creditors from continuing or initiating lawsuits and wage garnishments.

Notice of the bankruptcy is given to all creditors listed by the debtor. A meeting of all creditors then is held where creditors may ask questions of the debtor and unsecured creditors will be able to file their claims. 11 U.S.C. § 343. After this meeting of creditors, another meeting with the debtor, the Chapter 13 trustee and the creditors is held the subject of which is the Chapter 13 repayment plan.

What is The Chapter 13 Repayment Plan?
The crux of a Chapter 13 Bankruptcy is the repayment plan, which must be filed with the petition or within 15 days thereafter and states how the debtor intends to repay creditors in the next 3 or, if approved by the court 5 years. 11 §U.S.C. 1322(d)(2). Within 30 days, the debtor must start making fixed payments to the trustee, regardless of whether the plan is approved. 11 §U.S.C. 1326(a)(1). If approved, the trustee will then distribute the funds to the creditors according to the plan.

Payment of Claims and Discharge
There are 3 types of claims (1)priority claims, (2) secured (3) unsecured.
All priority claims, under a Chapter13, must be paid in full unless otherwise agreed upon or in the case of a domestic support obligation, if the debtor contributes all “disposable income”. 11 U.S.C. § 1322(a).

The debtor may keep collateral secured by any secured claim as long as the debtor pays at least the value of the collateral. However, if the loan was used to buy the collateral and the debt was incurred within certain time frames before the bankruptcy, the loan must be paid in full (not just the value of the property).

Unsecured claims need not be paid in full so long as the debtor intends to pay all projected “disposable income” over an “applicable commitment period,” and unsecured creditors receive at least as much under the plan as they would receive if the debtor had filed a Chapter 7. 11 U.S.C. § 1325.

Within 45 days of the creditors meeting, the judge must hold a confirmation hearing to decide the feasibility of the plan with regard to the standards set forth in the Bankruptcy Code. 11 U.S.C. §§ 1324, 1325.

If the court confirms the plan, the Chapter 13 trustee will distribute funds received under the plan “as soon as is practicable.” 11 U.S.C. § 1326(a)(2). If the court declines to confirm the plan, the debtor may file a modified plan. 11 U.S.C. § 1323. The debtor may also convert the case to a liquidation case under chapter 7. 11 U.S.C. § 1307(a). 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). 11 U.S.C. § 1326(a)(2).

Discharge will be granted upon completion of all payments under the Chapter 13 plan so long as the debtor: (1) certifies that all domestic support payments 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 financial management course. 11 U.S.C. § 1328.

How Can Filing Ch. 13 Save My Home?
When faced with foreclsoure, filing for Ch. 13 will halt all foreclosure proceedings against you as well as any payments that need to be made. You will then be able to work out a new plan with your lender allowing you to repay your mortgage and keep your home, if you choose. Filing for Ch. 13 often strips away 2nd and 3rd mortgages. Most of the time, the first mortgage covers the entire house leaving the 2nd and 3rd mortgages to be classified in a Chapter 13 last as unsecured debts. You may be able to get out of paying these 2nd and 3rd mortgages all together in this scenario.