What is Chapter 13 Bankruptcy?
Chapter 13 Bankruptcy is governed by Chapter 13 of the Bankruptcy Code and is known as a "wage earners" or consumer "reorganization" bankruptcy because clients use a chapter 13 plan to reorganize their debts. Since clients will have a plan to pay back some or all of their debts, the Bankruptcy Code refers to Chapter 13 as an "Adjustment of Debts of an Individual with Regular Income."
Many Vocabulary words and general bankruptcy terms are not covered in this eBook. Don't worry! Links to some of our other eBooks are below.
Who might file a Chapter 13 Bankruptcy?
Under the bankruptcy code, only an individual or a married couple can file chapter 13 bankruptcy. A business cannot file chapter 13 bankruptcy in its own name. However, a business owner frequently finds chapter 13 useful because he or she is often personally liable on business debts.
Chapter 13 is most often used when an individual or married couple is behind on secured debts, such as a house or a car, or behind on priority debts, such as child support and taxes. This is because the chapter 13 plan can be used as a means to catch-up secured and priority debts over a period of 3 to 5 years.
Our eBook, Common Reasons People File Bankruptcy, gives various scenarios of how chapter 13 may be used.
What are the qualifications to file a Chapter 13 Bankruptcy
Individuals and married couples may not use chapter 13 as a means to reorganize debts if their debts exceed the debt limit. The debt limit is an exact figure and is regularly updated, but to keep things simple, an individual or married couple is ineligible from chapter 13 if their unsecured debts are in excess of approximately $384,000 and their secured debts are in excess of approximately $1.1 million. An individual or married couple with debts in excess of these figures will need to use chapter 11 to reorganize debts. However, since married couples are not required to file together, it may be possible for married couples to file separate bankruptcy cases to avoid the debt limit.
Some people may be disqualified from filing chapter 13 because they have filed bankruptcy in the recent past and a judge has barred them from re-filing another bankruptcy for a certain period of time.
Others who have an interest in chapter 13 may not benefit because they have no legal claim or ownership in the property they hope to save through the chapter 13 plan.
What happens in a Chapter 13 Bankruptcy?
First, we will meet so that we can ascertain your case and determine whether chapter 13 is the best fit for you. If chapter 13 can help with your financial problems and you would like to pursue a case, we will have 2 more appointments. During the second appointment, we will review your documents, such as your income statements and your credit report, to prepare your bankruptcy paperwork. Finally, during your third appointment, we will review your bankruptcy documents prior to filing. At this time, we will give you your plan payment instructions. The bankruptcy code requires completion of a credit counseling class prior to filing. Your retainer pays for this course, which can be completed online or over the phone. You will complete the credit counseling class prior to filing.
Your first plan payment will be due 30 days after filing and will include your ongoing mortgage payment, mortgage arrears and attorney's fees. Your plan may include other debts such as car payments, and arrearage payments for: 1)HOA dues; 2)income taxes; 3)county taxes, and 4)child support.
In addition to the written plan payment instructions, we will email your plan payment instructions and send you links to the online plan payment system. We will send you text reminders when your plan payment is due.
Approximately 30 to 45 days after filing, you will attend a Meeting of Creditors. Don't worry, we will be there too! During this meeting, we will talk to the Chapter 13 Trustee or one of his hearing officers about your paperwork and your reasons for filing. The meeting lasts about 10 minutes. After your meeting, the Trustee offers the Financial Management Course free of charge.
Confirmation is the next step in your case. Confirmation is when the Chapter 13 Trustee determines whether he should advise the judge to sign your chapter 13 plan as an acceptable repayment plan. Prior to confirmation, you have bankruptcy protections due to the automatic stay, but your plan has not yet been accepted by the Court. Your creditors can object to confirmation if they feel they are not treated fairly. The Trustee may also object if the plan does not meet the bankruptcy code requirements. After your plan has been confirmed, your creditors, and you, are bound by the terms of the chapter 13 plan. However, you may be able to modify your plan after confirmation if you need to change the terms of your chapter 13 plan.
Following confirmation, the Trustee makes his recommendation concerning claims. While the plan shows your intentions regarding treatment of creditors, the Trustee's Recommendation Concerning Claims shows the Trustee's intentions regarding creditor payment. However, many creditors will have been receiving payments from the Chapter 13 Trustee on your behalf for several months prior to the Trustee's Recommendation Concerning Claims.
Since your plan will last 3 to 5 years, you may find that your case requires additional hearings, such as a request to incur debt or a chapter 13 plan modification.
Once you have completed your plan payments and completed all requirements under the plan, you will file a Motion for Discharge.
Under what circumstances could a creditor or another party object to a Chapter 13 Discharge?
The information below comes from Sections 1328, 523 and 522 of the United States Bankruptcy Code. If you have questions about your case, please don’t hesitate to contact us.
A bankruptcy discharge releases a Debtor from personal liability for certain types of debts.
This means you are no longer legally required to pay those debts.
It is important to remember that certain debts are not discharged such as:
a. Student Loans
b. Court ordered support payments, and some non-court ordered support payments
c. Late-filed taxes and penalties
d. Certain penalties and interest related to taxes
e. Debts related to certain crimes, death or personal injury
f. Debts incurred after filing your case
g. Debts related to fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny
h. Debts related to willful or malicious injury by the Debtor to another entity or to the property of another entity
i. To the extent such debt is for a fine, penalty or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss
j. A debt that could have been listed in another case and the discharge was waived or denied
k. You have entered into an agreement or have Court Orders against you regarding fraud or defalcation while you acted in a fiduciary capacity at a depository institution; or malicious or reckless failure to maintain capital at a depository institution
l. Restriction payments to the US government issued under Title 18 of the United States Code
m. Fines or penalties imposed under an election law
n. Post-filing HOA dues for as long as you have title to the home
o. Fees imposed on a prisoner for filing an appeal
p. Funds owed to a pension profit sharing, stock bonus, or other plan established by the IRS under 501(c)
q. Creditors who were not listed if the Debtor was aware of the creditor in time to list
Occasionally, a debt is excepted from discharge. Usually, a creditor does not dispute the dischargeability of a debt. However, when a creditor believes its debt should be excepted from discharge, the creditor can file a lawsuit in Bankruptcy Court. Sometimes, these creditors are not outlined in the list of creditors excepted from discharge. In this case, the creditor may still move to have its debt excepted from discharge by proving fraud. If the creditor wins the lawsuit, other debts are discharged, only the debt of the suing creditor is not discharged. Remember, the creditor who wants its debt excepted from discharge must sue in bankruptcy court first.
Some of the debts in the previous section may result in a lawsuit by a creditor, but the most common lawsuits occur due to fraud, which is described below.
A debt may be excepted from discharge when the debt was obtained by:
False pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition
1. Use of a statement in writing
2. That is materially false
3. Respecting the debtor’s or an insider’s financial condition
4. On which the creditor to whom the debtor is liable for such money, property, services or credit reasonably relies; and
5. That the debtor caused or made or published with intent to deceive
6. Most commonly, this occurs when a debtor has used credit for luxury goods prior to filing. According to the Bankruptcy Code, false pretenses, false representation or actual fraud mean:
7. Consumer debts owed to a single creditor and aggregating more than $650 for luxury goods or services incurred by an individual debtor on or within 90 days before Chapter 13 was filed are presumed nondischargeable; and
8. Cash advances aggregating more than $925 that are extensions of consumer credit under an open-end credit plan obtained by an individual debtor on or within 70 days before the chapter 13 was filed are presumed nondischargeable
9. There are certain instances where the Court may decide none of your debts are discharged. For instance, the Court can deny a discharge or revoke a discharge when:
a. The plan has not been followed
i. You have not made all plan payments
ii. You have not made all direct payments, like your ongoing car or mortgage payments if these payments were not paid by the Trustee
b. You have committed fraud
c. The filing was an abuse of the bankruptcy code
d. You have lived in your home less than 1215 days, you have done any of the following and claimed a homestead exemption greater than $155,675.00:
i. Violated Federal Securities Laws
ii. Committed fraud in connection with the purchase or sale of securities
iii. You have been sued by the government and civil remedies have been imposed, or
iv. Criminally, intentionally, recklessly or willfully caused serious physical injury or death to another individual in the five years prior to discharge
e. You are not current on Domestic Support Obligations
f. You have received a discharge in a chapter 7, 11, or 12 during the 4 years before your 13 was filed
g. You have received a chapter 13 discharge within the 2 years prior to the filing of your current chapter 13 case
h. A criminal proceeding is pending against you alleging that you are guilty of a felony
i. A civil case is pending against you for:
i. Violation of securities fraud
ii. Fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security
iii. You are being sued or prosecuted by the government and civil remedies have been imposed, or
iv. Criminally, intentionally, willfully or recklessly caused serious physical injury or death to another individual in the preceding 5 years
What happens at the end of my case?
What happens after my chapter 13 discharge?
a. The chapter 13 will stay on your credit report for 7 years
i. If you refer to the credit report we reviewed together, there is a section which disclosed bankruptcy filings. Your chapter 13 will be listed here for the next 10 years.
b. Typically, clients find their credit scores improve after a discharge. This is because many of your accounts were probably delinquent or sold to a collection agency.
However, you must maintain good habits to keep the higher score and continue to improve.
i. Keep making your ongoing payments for the property you have decided to keep, like your house and car, on time.
ii. Make sure you stay current on your property taxes and insurance. Don’t give your secured lenders a reason to repossess and ding your credit.
iii. Pay your utilities on time. Many utility companies only report when you all behind. Don’t give them a chance to ding your credit.
iv. If you decide to get cards again, be careful how you use them. If you are late, your credit can be negatively affected.
v. Stay current on your medical bills. Many doctors and hospitals only report when you fall behind. Don’t let them ding your credit.
vi. Don’t use pay day loans.
c. If a debt is discharged, your creditors should not ask you to pay the debt. If creditors are attempting to collect a discharged debt, please call us and let us know. We may need to file a lawsuit, but we only have a limited time to do so.
d. You can get a free copy of your credit report from the Federal Trade Commission. A link is below:
The FTC also provides information about how to dispute errors on your credit report.
e. If you have questions, please contact us. You can call us at 214-696-9601 or email me at megan@priceandpricelawfirm.com
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