A Chapter 13 bankruptcy is for people with a regular income.

It provides for a restructuring of debt to make it more affordable and requires payment of the debt, usually within

three to five years.

 

The length of time you will have depends on your income. If you bring in less than the median income for your state, the plan generally lasts three years. If you bring in more, it usually lasts five. While the plan is in effect, creditors can neither start nor pursue collection efforts.

 

Chapter 13 acts like a consolidation loan. You will make the plan payments to a trustee who will distribute the money to your creditors. You have no direct contact with those creditors while you are under the plan.

 

Payments are based on your anticipated income over the life of the plan.

 

Chapter 13 brings several advantages over a Chapter 7 liquidation, including the ability to save your home from foreclosure. It stops foreclosure proceedings and allows you to make delinquent payments over time, although you also have to make your base mortgage payment on time each month.

 

It also allows you to reschedule secured debts, such as a car payment, and stretch the payments out over the life of the plan. This may result in lower payments.

 

Your plan will be approved or disapproved by a judge, who will decide whether it meets the bankruptcy code requirements.

 

You must complete the plan and make all agreed payments before your debts will be discharged. More debts are discharged through Chapter 13 bankruptcy than through Chapter 7.

 

 

In order to be eligible to file under Chapter 13, your unsecured debts must be less than $336,900 and your secured debts must be less than $1,010,650. These amounts are adjusted periodically based on the consumer price index, so you need to get current numbers before you decide to file.

 

You cannot file for any type of bankruptcy if, within the last 180 days, a bankruptcy petition you filed was dismissed due to your willful failure to appear in court or comply with any orders of the court, or you voluntarily dismissed the previous petition after creditors sought relief from the court to recover property on which they hold liens.

 

You also cannot file for bankruptcy unless you have received credit counseling from an approved credit counseling agency within the last 180 days. A list of government-approved credit counselors is available online.

 

There may be exceptions to the credit counseling requirement in emergency situations or in areas where a U.S. trustee or bankruptcy administrator has determined there is a shortage of credit counselors.

 

 

A Chapter 13 bankruptcy case begins when you file a petition with the bankruptcy court serving the area where you live. You can search online for your bankruptcy court.

 

Once you file the petition, your creditors must stop most collection efforts, at least temporarily. They cannot start or pursue lawsuits or wage garnishments, and cannot make calls demanding payment. They also cannot try to collect from a cosigner on any consumer debt you have. Consumer debts are those incurred for a personal, family or household purpose.

 

Filing also will stop a foreclosure case. However, it will not undo a foreclosure -- you may still lose your home if the foreclosure is completed before the filing is made, or if you fail to make the regular mortgage payments that come due after you file Chapter 13.

 

In addition to the petition, and unless the court orders otherwise, you will have to file a list of your assets and liabilities, a list of your income and expenditures, a list of executor contract and unexpired leases and a statement of your financial affairs.

 

You also need to file a certificate that shows that you have had credit counseling and a copy of any debt repayment plan developed during that counseling, evidence of any payment from employers within the last 60 days, a statement of monthly net income and any anticipated increase in income or expenses after filing, and a record of any interest you have in a federal or state qualified education or tuition account.

 

A trustee – or, in North Carolina and Alabama, a bankruptcy administrator -- will be assigned to your case and that trustee will also need copies of your tax return or transcripts for the most recent tax year as well as tax returned filed during the case, including returns for prior years that had not been filed when the case began.

 

A husband and wife may file a joint petition, or file separately. If only one files, that person will have to provide information on the spouse’s monthly living expenses as well as their own.

 

The forms needed to file this paperwork are not available from the court. They can be bought at a legal stationary story or obtained online. 

 

You will pay a $235 filing fee and a $39 administrative fee when you file your petition. A judge may allow you to make payments on the fees. If husband and wife file jointly, only one set of fees is charged.

 

Your payment plan proposal can be filed with the petition or within 15 days of the petition. It must provide for payment of fixed amounts to the trustee on a regular basis, typically biweekly or monthly.

 

 

Within 60 days of a Chapter 13 filing, the trustee will set up a meeting with your creditors, during which you will be placed under oath to answer questions from the trustee and your creditors about your financial affairs and the proposed terms of your plan.  Any problems with the plan are typically resolved at the meeting or shortly thereafter.

 

Within 45 days of the meeting a judge will review your plan in court during a confirmation hearing. Creditors can object to the plan, and, if they do, their complaint is most commonly that they will be receiving less than they would if you had filed under Chapter 7 bankruptcy,  or that the plan does not make use of all of your “disposable income.”

 

Your disposable income is your income minus any child support payments and minus the amount reasonably necessary for the maintenance and support of you and your dependents, plus charitable contributions of no more than 15 percent of your gross income. If you operate a business, your ordinary operating costs are also not counted as disposable income.

 

If the judge declines to approve your payment plan, you may be able file a modified plan or convert the case to a Chapter 7 filing. If the judge instead dismisses the case, the court may authorize the trustee to keep some of any money you have paid to cover costs, but the rest – unless paid or due to creditors – will be returned to you.

 

A plan may be modified after it is approved to solve certain problems.

 

 

Claims will be sorted into three groups: priority, secured and unsecured.

 

Priority claims, such as taxes, the costs of the bankruptcy proceeding or a domestic support obligation, will be paid in full, unless a creditor agrees to have his claim treated differently.

 

Secured claims, such as a car loan, are those for which the creditor has the right to take back certain property—the collateral — if you fail to pay. If you want to keep an item, say a car, that is securing a creditor’s claim, the payment plan must provide the creditor with at least enough to cover the current value of the item – say, the depreciated value of the car. In some cases, however, payment of the full amount of the loan will be required. It is recommended that you see an attorney for assistance in providing for secured debts in your plan.

 

Unsecured claims, such as those for credit card debt, are those without collateral. The plan does not have to provide for payment of all your unsecured debt as long as you agree to pay all your disposable income over a set commitment period to those creditors and they receive at least as much under your plan as they would have if your assets had been liquidated under Chapter 7.

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Plan payments to the trustee begin 30 days after the Chapter 13 bankruptcy filing, even if the plan has not yet been approved by a judge. If any secured loan payments – typically car or house payments – come due before the plan is approved, they must be made in full, but those payments mean an adjustment to the amount paid to the trustee.

 

Payments can be made by payroll deduction. Your employer cannot discriminate against you solely because you filed for bankruptcy.

 

If you fail to make the payments due, the court may dismiss the case or convert it to a Chapter 7 liquidation case.

 

During the period in which the plan is in effect, you cannot take on any new debt without consulting the trustee because additional debt may hinder your ability to complete the plan.

 

 

The law regarding discharge of debts under Chapter 13 is complicated and has been changed recently. It is recommended that you consult an attorney before filing to determine the scope of your Chapter 13 discharge.

 

Once you’ve completed your payment plan, in most cases you are entitled to a discharge.

 

Before you can get a discharge, all domestic support obligations must have been paid.

 

A discharge may be denied if you received a discharge in a Chapter 7, Chapter 11 (a reorganization chapter ordinarily used by commercial enterprises) or Chapter 12 case filed four years before the current case, or in a Chapter 13 case filed within two years; or if you failed to complete the required course in financial management. A list of approved debtor education agencies, sorted by state, is available online.

 

And the judge will not enter a discharge until it is determined there is no reason to believe there is any pending proceeding that might result in a limitation on your homestead exemption.

 

As a general rule, the discharge releases you from all debts provided for by the plan or disallowed.

 

Some debts will not be discharged: certain long-term obligations, such as a home mortgage; alimony or child support, taxes, government-funded or -guaranteed education loans or benefit overpayments; debts arising from death or personal injury caused by driving intoxicated or under the influence of drugs; and restitution or a criminal fine included in a sentence following a conviction for a crime.

 

Also on the list of debts that won’t be discharged are those for money or property obtained under false pretenses, for fraud and defalcation while acting in a fiduciary capacity or for restitution or damages awarded in a civil case for willful or malicious action by you that caused personal injury or death; for willful and malicious injury to property, for debt incurred to pay nondischargeable tax obligations; and debts arising from property settlements in divorce or separation proceedings.

 

To the extent these debts were not paid under the plan, you will still have to pay them after the bankruptcy case concludes. 

 

Creditors also have the right to ask that a debt not be discharged.

 

A discharge order is permanent and prevents the creditor from taking any form of collection action on the discharged debt, including telephone calls, letters and personal contact.

 

If you fail to complete your Chapter 13 payment plan due to circumstances beyond your control, you can apply for a hardship discharge. Injury or illness that reduces your income below the level where you can support even a modified plan may serve as a basis for the request.

 

Generally, a hardship discharge is available only if your creditors have received at least as much as they would have received under a Chapter 7 bankruptcy, and modification of the plan is impossible.

 

If your request for a hardship discharge is granted, your debts will be discharged even though your plan has not been completed. The kinds of debts that will be discharged are more limited under a hardship discharge – it resembles the more limited list that applies to a Chapter 7 bankruptcy.

 

 

A Chapter 13 discharge of debt may be revoked if confirmation of your payment plan or the discharge is obtained by fraud. The judge can revoke the order of confirmation or the discharge.

 

Assuming the discharge stands, you have the right to pay any discharged debt you choose. Sometimes people repay family members or someone with whom they want to maintain a good relationship, such as a family doctor.

 

If a creditor tries to collect a debt after it is discharged, you can file a motion with the court reporting them and asking that the case be reopened to address the matter. The bankruptcy court often does so to make sure the discharge is not violated. The normal sanction for violating a discharge injunction is civil contempt, which often carries a fine.

 

Source:  The web site of the federal court system, uscourts.gov