Chapter 13
A Quick Look At Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is also known as a "Reorganization" or "Wage Earners Plan", because it is designed to provide relief to individuals who are working. According to the American Bankruptcy Institute in May, 2010, there were 134,142 filings with 26% of those being Chapter 13. This filing offers individuals the ability to keep their homes from going into foreclosure, stop foreclosure proceedings, and repay delinquent payments on debts over a three to five year period.
This type of filing is a lot like a consolation loan and gives you more control than a Chapter 7 bankruptcy filing. Payments are made to the Trustee appointed by the courts, who makes payments to the creditor. Most people have the payments taken from their paycheck through an automatic payroll deduction. When you are considering this type of filing, it is important to consider that a benefit of this type of filing is the fact that some debts which are not dischargable in other filings are allowed under Chapter 13.
Another advantage of this filing is that if you are behind on the house payments, car payments or other secured debt, you will be able to pay the arrears while you are paying each month. Within 3-5 years, your arrears will be paid off and you will be able to make the regular payments on the debt and be in good standing with your lender.
To file for this type of protection, you must have secured debts of less than $1,081,400 and unsecured debts of less than $360,475. This figure is adjusted to match the consumer price index on a regular basis. In addition, you must have participated in a credit counseling course within 180 days of filing.
There are three types of debts which are included in the restructuring plan that you create. Priority debts must be paid in full over the 3-5 year period, secured debts, such as a mortgage, will be caught up in 3-5 years, and unsecured debts will normally not receive the total owed, but be provided with a portion of the debt which you will pay through the courts.
Prior to the plan being presented to the court for approval, the Trustee will set up a meeting, called a 341 meeting, with your creditors and you to review the plan. The creditors may request changes at this meeting or want to iron out details that have not been addressed.
When a creditor does not agree with the proposed plan, they can file an objection to the plan. However, once the court has approved the plan, the creditors cannot change it. There are certain circumstances when a hardship discharge will be allowed by the courts. If something has happened that is beyond your control such as an illness, injury, etc., that makes it impossible for you to make payments; When creditors have received at least as much money as they would have with a Chapter 7 filing; or, When a modification is not possible because of a life-changing event. In some cases, the court will order a conversion to a Chapter 7.
There are several forms, schedules, and statements that must be filed when petitioning for this type of protection. While a husband and wife can file separately, it is still necessary for both spouses to complete the statement of financial affairs so that the court will be able to assess the amount of money that will be distributed by the Trustee to creditors. You will also be required to provide schedules of your assets and liabilities, current income and expenditures, executory contracts and unexpired leases.
A statement of financial affairs, evidence of payment from employers for the past sixty days, and a statement of monthly net income will also be required. If you are anticipating any raises or added income during the course of the restructuring, you will need to provide this information as well. The Trustee will require copies of past tax returns and returns that are being filed during the year that your hearing takes place.
When you are protected under this filing, you cannot incur any additional debts without first consulting with the Trustee assigned to your case. It is also important to be prepared to live on a fixed budget for a pro-longed period. An individual choosing this type of filing must be serious and committed to re-structuring their debt and paying off the arrears on secured debts. You will learn how to budget your finances and, create a realistic repayment plan through the credit counseling class that you participate in.
Filing a Chapter 13 bankruptcy is very detailed and requires several steps to move through the legal system smoothly. Therefore, getting the advice of a legal professional that is knowledgeable and experienced in these types of cases will be very helpful. They will be able to provide you with the assistance, advice, and information that you will need to be fully prepared for meetings with the Trustee and Court. In addition, they will represent you when there are hearings or you must appear for confirmation or opposition meetings.