About Chapter 13...
If you want to try to avoid foreclosure of your home mortgage, this is the chapter for you.
This chapter of the Bankruptcy Code provides for "adjustment" of debts of an individual with regular income. Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years. A chapter 13 bankruptcy is also called a wage earner's plan, although a debtor need not have a job to file chapter 13. It enables individuals with regular and stable income - from ANY source, even retirement - to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. While the plan is in effect, the law forbids creditors from starting or continuing collection efforts unless the court orders otherwise.
Chapter 13 offers individuals a number of advantages over liquidation under chapter 7. Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and can cure delinquent mortgage payments over time, up to five years. Nevertheless, the debtor must also continue to make all mortgage payments that come due during the chapter 13 plan, on time. Another advantage of chapter 13 is that it allows individuals to modify secured debts (other than a mortgage for their primary residence, generally) such as by reducing the interest rate, and extend them over the life of the chapter 13 plan. Doing this may lower the payments. Chapter 13 also has a special provision that protects third parties (like your spouse or a friend) who are obligated with on "consumer debts" (such as co-signers). Finally, chapter 13 acts somewhat like a consolidation loan under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors (except it's not a "loan", of course). Individuals should have no direct contact with pre-filing creditors while under chapter 13 protection. As stated in the Bankruptcy Code: "Only an individual with regular income that owes, on the date of the filing of the petition, noncontingent, liquidated debts of less than $2,750,000 or an individual with regular income and such individual’s spouse, except a stockbroker or a commodity broker, that owe, on the date of the filing of the petition, noncontingent, liquidated debts that aggregate less than $2,750,000 may be a debtor under chapter 13 of this title." This amount is adjusted every three years to reflect changes in the consumer price index. A corporation or partnership may not be a chapter 13 debtor.
In preparing for filing, you must take a Credit Counseling course from an authorized provider, and give me information concerning your income and expenses for the six months prior to the filing date. Also, you must be sure that your tax returns are filed. I will also need information on all of your property and your debts. To help gather that information, I will give you a series of forms to fill out. Also, you must disclose everything, good and bad; not disclosing can lead to serious penalties.
How Chapter 13 Works
Using the information you provide us, I prepare a series of documents totaling about 30 pages or so, including the plan. The court charges a filing fee of $313. Under certain circumstances, the court's fee can be paid in installments, but can NOT be waived. Once I file the petition and related documents, a meeting is scheduled with the bankruptcy trustee (called a "341 meeting" or "first meeting of creditors") which you MUST attend. I will go with you, of course! Sometimes the meeting is held by a telephone call. I am with you every step of the way and for the duration of the case unless something unexpected happens.
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, such as criminal charges, and the stay may be effective only for a short time in some situations. The stay arises by operation of law and requires no action by a judge. As long as the stay is in effect, pre-filing 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, so be sure to list all potential creditors, even if you dispute the debt.
In a chapter 13 case, to participate in distributions from the bankruptcy trustee, all creditors (including mortgagees) must file their claims with the court within 90 days after the first date set for the meeting of creditors. If there are no objections to the plan, the bankruptcy judge "confirms" the plan, and the trustee then distributes the funds to creditors according to the terms of the plan, which may offer some creditors less than full payment on their claims. The plan need not pay general 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. Some unsecured claims are considered "priority"; these include taxes and divorce related obligations, which must be paid in full unless the creditor agrees otherwise (which is rare). The "disposable income" amount and the "applicable commitment period" are determined based on your pre-filing income and your projection of future income; I will help you figure these out.
Generally, 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 the court confirms the plan, the chapter 13 trustee will distribute funds received under the plan "as soon as is practicable." If the judge refuses to confirm the plan, the debtor may file a modified plan, or the case may be dismissed (which usually is undesirable, of course).
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, and the omitted creditors can be added. 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.
Making the Plan Work - It's up to YOU!
The provisions of a confirmed plan bind the debtor and each creditor listed in the plan. Once the court confirms the plan, the debtor must make the plan succeed. The debtor must make regular payments to the trustee, 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 (such as refinancing a mortgage) without the judge's permission, because additional debt may compromise the debtor's ability to complete the plan.
Under some circumstances, a case can be dismissed (which is not a good result). This may happen, for example, if you get behind on your payments to the trustee, you don't file your tax returns, or if you otherwise fail to follow the rules. In most cases, I will be there for the full term of your plan to help you if something goes wrong.
The Chapter 13 Discharge - The "Home Run"!
When you've made all the payments required by the plan, the chapter 13 trustee will notify the court and the judge will issue an Order of Discharge, relieving you of the obligation to pay most of your debt. 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. Before the discharge can issue, you must take a Financial Management Course from an authorized provider; I will help you find one.
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. 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 non-dischargeable.
The discharge in a chapter 13 case is somewhat broader than in a chapter 7 case. Debts dischargeable in 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.
A chapter 13 case may be converted to chapter 7 if circumstances change during the case, such as a loss of employment or medical issues.
GETTING ON WITH YOUR LIFE
Once the judge issues the Order of Discharge, most creditors are prohibited from contacting you or trying to collect a debt that was listed in the bankruptcy plan; the discharge generally does NOT prevent foreclosure of a mortgage or repossession of a car if payments are not made. Occasionally, a creditor will illegally attempt to collect an old debt. If so, you should contact your attorney for assistance.
Because I am usually with you for the full term of your plan, feel free to call me any time there is a problem, up to the point where the discharge is granted or the case is dismissed. Even after that, I may be able to help you if a problem arises.
Debts for child support, alimony, taxes, student loans and court orders for restitution are among the debts that usually are NOT discharged.
The discharge does NOT affect the bank's right to foreclose the mortgage, so you MUST remain current on the mortgage. Sometimes, if you get behind on your mortgage during the case, you can make adjustments to catch up, but if you don't, you might not get a discharge or the bank might be allowed to foreclose.
Chapter 13 can discharge a few MORE debts than chapter 7!
During your case, if you think a creditor is illegally trying to collect a debt from you, let me know and I will take all the appropriate steps to stop the creditor, including suing the creditor on your behalf.
In Chapter 13, you keep all of your property unless you want to give it up.
I will help you design a financial plan that fits your financial situation.
Creditors MUST stop harassing you!
Interest and penalties on credit cards stop, but the account will be closed!
So long as you comply with your Chapter 13 plan and make all the required payments,
Chapter 13 also protects family and friends who are liable on your consumer debts also (co-signers). This does not apply to business debts
To qualify for chapter 13, you must have income that is reasonably regular and stable, from any source.
It is possible to have too much debt for chapter 13, but not likely.
To begin gathering the necessary information our "First Appointment" page will tell you what documents I will need.
Click here for the First Appointment page.
Credit counseling is required before filing!
Here's an overview of the process: 1) Prepare the paperwork & pay the court's fee; 2) Attend the meeting with the trustee; 3) Make all the payments required by your plan. It really is that simple, and so long as you keep up the payments, you'll get the relief you need.
Collection activity, including foreclosure, stops "automatically". Let us know if a creditor illegally tries to collect a debt from you.
The stay does NOT prevent criminal prosecution and certain other governmental activities, however!
Creditors who don't file claims don't get paid, and if you complete your plan successfully, you NEVER have to pay them, so long as they got notice of the case, so be sure to provide information on ALL creditors, even if you think you don't actually owe a particular creditor.
Secured claims, like mortgages, must be paid in full, but credit cards can be paid less than the full amount they are owed and the balance will be "wiped out".
You need to be ready to start paying the trustee and the mortgage within 30 days after you file! The amount you pay the trustee is based on your budget, primarily. I will help you prepare a budget that complies with the bankruptcy code requirements.
Because a plan lasts from three to five years, approximately, it may be necessary to make adjustments during the case. I am usually at your side for the entire term of the plan.
Once the plan is confirmed by the judge, you AND your creditors are bound by its terms, subject to the possibility of adjustment, if necessary.
During the term of the plan, you can NOT sell property or get new credit UNLESS the judge permits it. I am sometimes able to help clients refinance mortgages while in chapter 13.