It is important to realize that changes may occur in this area of law. This information is not intended to be legal advice regarding your particular problem, and it is not intended to replace the work of an attorney.
Chapter 13 is a special part of the bankruptcy law. It lets you file a plan that combines your debts and gives you a way to repay all or part of them while protecting you or your co-signer from harassment by creditors. If your financial problems or debts cannot be helped by consumer credit counseling or a Chapter 7 straight liquidation, Chapter 13 may be an excellent alternative for you.
To qualify for Chapter 13, you must meet several requirements. You must be an individual, or husband and wife, or a sole proprietor of a business. You must have a regular income. A partnership or a corporation does not qualify for this type of bankruptcy. At the time of this writing, your unsecured debts must be less than $307,675 and your secured debts less than $922,975. A secured debt is one that a creditor has a mortgage or security interest in, such as a house mortgage or automobile lien.
The maximum length of a Chapter 13 plan is five years. You cannot receive a discharge in a Chapter 13 case if you have received a discharge in a Chapter 7 case filed within the last four years, or received a Chapter 13 discharge in a case filed within the last two years.
There are specific procedures involved in filing a Chapter 13 plan. First, you or your lawyer will need to prepare a financial summary of what and whom you owe, what your assets are, your monthly income and living expenses. You must also prepare your proposed plan for repayment. All of these items must be prepared on forms that have been approved by the court.
Before you can file for bankruptcy, you must complete a credit counseling course. After you file bankruptcy, and before you can receive a final discharge of your debts, you must complete a debtor education course. Both of these courses can be completed on the Internet or on the telephone. Depending on your financial situation, you may have to pay a fee.
Shortly after you file the bankruptcy you must submit a copy of your most recently filed federal tax return, or a transcript of it, to the trustee. You must also submit all required state, federal and local tax returns. You will be required to make your first payment to the trustee within 30 days of the date you filed your plan even if your plan is not yet confirmed.
The law does not require you to have a lawyer. However, bankruptcy law changes from time to time, and you may want to talk with a lawyer before filing a Chapter 13 case. After you file, the Bankruptcy Court will set a date for a hearing. This hearing is called the “meeting of creditors.” You and all of your creditors will be notified of the time, date and place of this meeting, and you will be required to attend and answer questions under oath about your financial matters.
The trustee appointed in your case will conduct the meeting. It is the trustee’s job to verify the financial information you give. The trustee will then determine whether he or she can recommend to the judge that your plan can be confirmed. At the meeting, the trustee and your creditors may question you about your income, expenses, property, past earnings and the schedule of repayment.
The court will also notify you of the date of the confirmation hearing.
At the confirmation hearing, the judge will determine whether your
plan should be confirmed and allowed to proceed. The creditors may
attend this hearing and offer any objections they may have. Your presence
at the confirmation hearing is not always required. If your plan is
confirmed, your employer may be ordered to make monthly payments to
the trustees by taking them out of your wages. However, you may object
to this if you have a valid reason.
Before you can receive a discharge, you must certify that all domestic
support obligations have been paid in full or that your plan provides
for the payment of the obligations.
The following benefits would be available to you if your Chapter 13
plan is filed in good faith, the filing fees are paid, the plan is
in the best interest of your creditors, and you can make your proposed
payments:
- If you complete the plan, you can be excused from most debts. Examples of debts that cannot be excused are: those for willful or malicious injuries that cause personal injury or death; domestic support obligations, such as child or spousal support; drunk driving; certain student loans; restitution and certain criminal fines included in a criminal conviction; debts incurred as the result of fraudulent conduct; and certain tax debts.
- You might be able to stop foreclosure against your property by making the back payments over a period of time. Such an extension is also available on back taxes.
- If your monthly payments on contracts are too large, you may be able to lower the monthly payment and possibly the interest rate. House payments are the exception; they cannot be changed.
- If necessary, you can pay the unsecured creditors less than 100% of their claims. Some taxes must be paid in full.
- You can stop interest from continuing to accrue on unsecured debts in most instances.
- You can take up to three years to repay the claims, and under some circumstances, you may take up to five years.
- You may be able to keep property that would otherwise be distributed to your creditors in a straight liquidation bankruptcy.
- You may be able to stop some or all collection activities against a person who co-signed a debt for you.
- You might be able to give a creditor back its security, such as a car, in partial or full satisfaction of the claim.
- You can end further obligations to creditors whose services you have not fully received, such as from spas and health clubs, dance studios, correspondence courses, leases, etc.
- For debts incurred before you filed your bankruptcy petition, no one can bother you, sue you, garnish your wages, or repossess property without court approval.
- You may be able to void certain liens against your household goods and against some other personal items.
- You can sometimes pay extra into the plan to get it paid off sooner.
- You can propose to sell some of your property as part of the monies to be paid through the plan.
- If there is a major change of circumstances, you can propose changes to your plan that would help you complete it. However, so can your creditors! If the change of circumstances is beyond your control and makes it impossible to continue even a modified plan, you can request a “hardship discharge.”
- If circumstances change, and you don’t want a hardship discharge, then you have the right to dismiss your plan or convert your plan to a straight liquidation bankruptcy.
- There is usually no time limit between when you file this plan and any past plan.
Legal Editor: Richard Slottee, Lewis & Clark Legal Clinic, November
2007