Chapter 13 Bankruptcy

Chapter 13 Bankruptcy Advantages

One of the biggest advantages of a Chapter 13 bankruptcy over a Chapter 7 is it will often provide a means to enable you to stop foreclosure on your home. The automatic stay period that all bankruptcies provide will provide with breathing room and a chance to bring your payments current. However, you will be required to keep making all payments on time during the Chapter 13 bankruptcy process.

Chapter 13 bankruptcy has other advantages as well, such as allowing you to reschedule secured debts (other than your home mortgage) over the life of the Chapter 13 bankruptcy reorganization plan, which can lower your payments. Also, Chapter 13 acts as sort of a consolidation loan, where you pay the trustee one payment and the trustee distributes the money according to the repayment plan.

Talk to your bankruptcy attorney at Sparber Rudolph Annen for all of the advantages (and disadvantages) of filing a Chapter 13 bankruptcy.

Chapter 13 Bankruptcy Eligibility

Any individual, even if self-employed or operating an unincorporated business, is eligible for Chapter 13 debt relief as long as the individual's unsecured debts are less than currently specified in the Bankruptcy Code. These amounts are adjusted periodically to reflect changes in the consumer price index and are currently set at $336,900. A corporation or partnership may not file Chapter 13. Stockbrokers and commodity brokers also may not file under Chatper 13.

You cannot file under Chapter 13 or any other chapter of the Bankruptcy Code if, during the preceding 180 days, a prior bankruptcy petition was dismissed either because you did not appear before the court or refused to obey the court’s orders. Also, if you voluntarily had a bankruptcy petition dismissed after your creditors sought relief from the Bankruptcy Court to recover property upon which they hold liens.

Mandatory Credit Counseling

Additionally, you must attend a credit counseling session from a government approved Consumer Credit Counseling Service (CCCS) within 180 prior to filing the petition. There are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If you develop a debt management plan during the required credit counseling, you must file it with the court.

The Chapter 13 Bankruptcy Process

Your Chapter 13 bankruptcy case begins when your Sparber Rudolph Annen bankruptcy attorney files a bankruptcy petition with the bankruptcy court. The petition must include:

• • A list of assets and liabilities
• • A list of current income and expenses
• • A statement of your financial affairs, and
• • A list of any unperformed contracts or any current leases
• • Copies of your latest tax return

If your debt is primarily consumer debt (credit cards), you also must file:

• • A certificate of completion from a government approved Consumer Credit Counseling Service (CCCS).
  
  
• • Pay stubs from the last 60 days, if you have any.

• An outline of your monthly income and any expected raises or increase in expenses after filing.

Bankruptcy Fees

The courts are required to charge a $245 filing fee, and a $39 miscellaneous administrative fee. You will usually pay these fees to the Bankruptcy Court clerk when the bankruptcy petition is filed. Sometimes the court will allow you to pay these fees in installments, which will be limited to four. Normally you will have to make all four installment payments with 120 days of filing the petition, but the court can allow you up to 180 days at its discretion.

If you are filing a joint petition with your spouse, you only have to pay one set of fees. If you do not pay your fees, your bankruptcy petition can be dismissed. However, if your income is less than 150% of the poverty level and you can’t pay the fee even in installments, the court can waive the fee requirement.

Bankruptcy Forms

You need to complete the Official Bankruptcy Forms that make up the petition, a statement of financial affairs, and schedules. The bankruptcy lawyers at Sparber Rudolph Annen can do this for you.  You will need the following information for this:

• • A list of all your creditors and the amount you owe each
  
  
• • The source, amount, and frequency of your income
  
  
• • A list of all of all your property
  
  
• • A detailed list of your monthly living expenses
  
  
• • A list of all your exempt property

If you’re married, you’ll also need to get the information for your spouse, even if your spouse is not filing bankruptcy along with you. The Bankruptcy Court wants this information to assess the financial condition of the household.

The Automatic Stay

Once you file a petition for a Chapter 13 bankruptcy, there is an “automatic stay” issued to your creditors. This will stop most collection attempts. It doesn’t stop all collections, as there are types that are not stayed. Your bankruptcy attorney from Sparber Rudolph Annen can tell you which ones will not be stopped. Also, the stay may be effective for only a limited period of time.

The stay begins automatically, without the court having to do anything. The Bankruptcy Court clerk will notify all the creditors you listed in your bankruptcy forms.

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 you on a debt. Consumer debts are those incurred primarily for personal, family, or household purposes.

Stop Home Foreclosure

The automatic stay is the key in helping you stop foreclosure on your home. The automatic stay stops the foreclosure proceeding as soon as you file the Chapter 13 bankruptcy petition. This then gives you a chance to bring the past-due payments current. Talk to your bankruptcy attorney at Sparber Rudolph Annen to devise the best strategy for saving your home.

The Creditors' Meeting

Between 20 and 40 days after you file for bankruptcy, the bankruptcy trustee will hold a meeting of creditors. This is called the 341 Meeting, named after the section of the bankruptcy code that requires this meeting. You are required to attend this meeting. Your creditors may attend this meeting. They are not required to attend.

During this meeting you will be sworn in and then the case trustee and/or your creditors can ask you questions. The bankruptcy trustee’s role is to ensure that you understand that you are filing bankruptcy and what doing so means, such as its affects on your credit history, the effect of receiving a discharge, the ability to file another bankruptcy under a different chapter and the effect of reaffirming a debt.

You may be nervous or embarrassed at having to face your creditors. But don’t worry. A Sparber Rudolph Annen bankruptcy attorney will attend the meeting with you to look out for your best interests. And besides, most creditors don’t usually attend these meeting anyway.

After the 341 Meeting, you, the Chapter 13 trustee, and those creditors who wish to attend will come to court for a hearing on your Chapter 13 repayment plan.

The Chapter 13 Reorganization Plan

Unless the Bankruptcy Court grants an extension, you must file a Chapter 13 bankruptcy reorganization plan (repayment plan) with the bankruptcy petition or within 15 days after the bankruptcy petition is filed. You submit the reorganization plan for Bankruptcy Court approval and must provide for payments of fixed amounts to the bankruptcy case trustee on a regular basis, typically biweekly or monthly. The bankruptcy case 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.

Types of Bankruptcy Claims

There are three types of claims: secured, priority unsecured, and unsecured.

• • Secured claims are those for which the creditor has the right take back the collateral if you do not pay the underlying debt. These are commonly debts for automobiles and houses.
  
  
• • Priority unsecured claims are those granted special status by the bankruptcy law because they are important to society. Examples of these are domestic support obligations, most taxes, and the costs of bankruptcy proceeding.
  
  
• • Unsecured claims are generally those for which the creditor has no collateral. Most credit cards fall into this category

Payments to some secured creditors (i.e., your 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 period. You should consult the bankruptcy attorneys at Sparber Rudolph Annen to determine the proper treatment of your secured claims in a Chapter 13 bankruptcy.

If you want to keep the collateral securing a particular claim, your plan must provide that you will pay at least the value of the collateral. This is called the strip down value. Under the New Bankruptcy Code, the strip down value provision no longer applies to vehicles purchased within 910 days (2½ years) of filing the Chapter 13 petition. If you want to keep a vehicle purchased less than 2½ years prior to the filing date, you’re going to have to pay the full contract amount.

The plan must pay priority unsecured 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 you contribute all of your disposable income towards a five-year plan.

In a Chapter 13 bankruptcy, you need not pay unsecured claims in full as long you will pay all of your projected disposable income over reorganization plan period (either three or five years) and as long as these creditors receive at least as much under the plan as they would receive if you had filed a Chapter 7 bankruptcy.

Making the Bankruptcy Plan Work

If the court approves your Chapter 13 repayment plan, both you and your creditors are bound by it. It is up to you, however, to make the plan work.

You must make your regular payments to the bankruptcy case trustee on time. You can do this either directly or through a payroll deduction. Making your payments through a payroll deduction will increase your chances of successfully completing the plan.

You will have to adjust your lifestyle to allow you to live on a fixed budget for quite a while. Additionally, while you’re allowed to keep property as long as your payments are made, you cannot take on new debt without the approval of the bankruptcy case trustee. This is because new debt may make it impossible for you to adhere to the repayment plan.

If you fail to make your payments under the confirmed plan, the Bankruptcy Court can dismiss your case or convert it to a Chapter 7, Liquidation Bankruptcy. This can also happen if you fall behind on any domestic support obligations or taxes.

The Chapter 13 Bankruptcy Discharge

The Chapter 13 bankruptcy discharge has recently undergone major changes. Call Sparber Rudolph Annen’s bankruptcy attorneys to discuss with you the scope of the discharge.

To qualify for a discharge under Chapter 13, you must:

• • Certify (if applicable) that all your domestic support obligations have been paid
  
  
• • That you have not received a discharge in a prior case filed within a time frame as specified in the new bankruptcy code
  
  
• • Have completed an approved course in financial management

Debts not discharged in Chapter 13 include:

• • Certain long term obligations (such as a home mortgage)
  
  
• • Alimony or child support
  
  
• • Some taxes
  
  
• • Student loans
  
  
• • Debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs
  
  
• • Debts for restitution or a criminal fine included in a sentence upon your conviction of a crime

To the extent that they are not fully paid under the Chapter 13 plan, you will still be responsible for these debts after the bankruptcy case has concluded.

The discharge in a Chapter 13 bankruptcy case is somewhat broader than in a Chapter 7 bankruptcy case. Consult your attorney at Sparber Rudolph Annen for a full explanation of which debts are dischargeable under Chapter 13.