Chapter 13 - Basics of Bankruptcy (2023)

background

A Chapter 13 bankruptcy is also known as a wage earner plan. It allows people with regular income to develop a plan to pay off all or part of their debt. Under this chapter, debtors propose a payment plan to pay creditors in installments of three to five years. If the debtor's current monthly income is below the applicable national average, the plan will last for three years unless the court approves a longer period "for good cause." (1) If the current monthly income of the borrower exceeds the respective national average, the term must be five years. In no event shall a plan provide for payments over a period of more than five years. 11 USC §1322(d). During this period, the law prohibits creditors from initiating or continuing collection efforts.

This chapter discusses six aspects of a Chapter 13 action: the benefits of electing Chapter 13, Chapter 13 eligibility requirements, how a Chapter 13 action works, how the plan works, and Chapter 13 special relief.

Chapter 13 Benefits

Chapter 13 offers people a number of advantages over Chapter 7 liquidation. Perhaps most importantly, Chapter 13 offers people the opportunity to save their homes from foreclosure. By filing under this chapter, individuals can stop the foreclosure process and correct missed mortgage payments over time. However, you must make all mortgage payments due during the Chapter 13 plan in a timely manner. Another benefit of Chapter 13 is that individuals can reschedule secured debt (other than a primary residence mortgage) and transfer it over the life of the Chapter 13 plan. This can reduce payments. Chapter 13 also contains a special provision that protects third parties liable to the debtor for "consumer debt." This provision may protect co-signers. Finally, a Chapter 13 acts like a consolidation loan, where the person makes scheduled payments to a Chapter 13 trustee, who then distributes the payments to creditors. People do not have direct contact with creditors while under Chapter 13 protection.

Chapter 13 Eligibility

How does Chapter 13 work?

A Chapter 13 case begins with the filing of a petition in the bankruptcy court that has jurisdiction over the territory where the debtor resides or is domiciled. In addition, unless the court directs otherwise, the debtor must file with the court: (1) lists of assets and liabilities; (2) a list of current income and expenses; (3) a list of current leases and service contracts; and (4) a statement of financial affairs. lined Bank R. page 1007(b). The debtor must also provide a credit counseling certificate and a copy of any debt settlement plan developed through the credit counseling; Proof of pay received from employers, if available, 60 days prior to filing; a statement of net monthly income and any expected increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or college fees. 11 USC §521. The debtor must provide the Chapter 13 trustee with a copy of the most recent tax return or tax year transcripts and all tax returns filed during the case (including prior year tax returns not filed when the case was filed). started) . Identity. The husband and wife can file a joint application or individual applications. 11 USC §302(a). (Official forms can be purchased from legal professionals or downloaded from the Internet at www.uscourts.gov/bkforms/index.html. They are not available in court.)

Courts are required to charge a filing fee of $235 and a miscellaneous administrative fee of $75. Generally, fees must be paid to the court clerk at the time of filing. However, with court approval, they can be paid in installments. 28 USC §1930(a); lined Bank R. page 1006(b); Table of Other Bankruptcy Court Costs, Item 8. The number of installments is limited to four, and the debtor must pay the last installment within 120 days of the request. lined Bank R. page 1006(b). With just cause, the judge may extend the term of any installment provided that the last installment is paid within 180 days following the filing of the application. Identity. The debtor can also pay the USD 75 administration fee in installments. If a joint petition is filed, only a filing fee and an administrative fee will be charged. Debtors should be aware that failure to pay these fees may result in the termination of the proceeding. 11 USC §1307(c)(2).

To complete the official bankruptcy forms that make up the application, financial report and annexes, the debtor must gather the following information:

1. A list of all creditors and the amount and nature of their claims;
2. the source, amount and frequency of the debtor's income;
3. list of all assets of the debtor; Y
4. An itemized list of the debtor's monthly expenses, i.e. h Food, clothing, lodging, utilities, taxes, transportation, medicine, etc.

Married individuals should collect this information for their spouse, whether they are filing a joint application, separate individual applications, or even just one spouse. In a situation where only one spouse files the return, the income and expenses of the non-filing spouse are necessary for the court, trustee and creditors to evaluate the financial situation of the family.

When a person files a Chapter 13 petition, an impartial trustee is appointed to administer the case. 11 USC §1302. In some districts, the trustee or US trustee(2) appoints a permanent trustee to hear all Chapter 13 cases. §586(b). The Chapter 13 trustee evaluates the case and acts as a paying agent, collecting payments from the debtor and making distributions to creditors. 11 USC §1302(b).

Filing a Chapter 13 petition automatically "helps" (stops) most collection proceedings against the debtor or the debtor's property. 11 USC §362. However, filing the petition constitutes certain types of actions set forth in 11 U.S.C. §362(b), and the suspension may only be for a short time in some situations. The suspension is effective by operation of law and does not require legal action. While the stay is in effect, creditors generally cannot start or continue lawsuits, garnish wages, or even make phone calls demanding payment. The insolvency administrator notifies all creditors in the insolvency proceedings whose names and addresses are disclosed by the debtor.

Chapter 13 also contains a special automatic stay clause that protects other debtors. Unless otherwise authorized by the bankruptcy court, a creditor may not attempt to collect a "consumer debt" from someone who is jointly and severally liable with the debtor. 11 USC §1301(a). Consumer debt is debt incurred by an individual primarily for personal, family, or household purposes. 11 USC §101(8).

People can use a Chapter 13 proceeding to save their home from foreclosure. The automatic stay stops the foreclosure process once the person files the Chapter 13 petition. The person can then bring up the past-due payments for a reasonable period of time. However, the debtor can still lose the home if the mortgage lender completes the foreclosure under state law before the debtor files the application. 11 USC §1322(c). The debtor can also lose the home if they do not make the periodic mortgage payments that are due after the Chapter 13 filing.

Between 21 and 50 days after the debtor files the chapter 13 petition, the chapter 13 trustee will hold a meeting of creditors. If the trustee or US trustee convenes the meeting at a location where the regular bankruptcy staff or US trustee is not present, the meeting may be held within 60 days of the debtor's filing . Lined Bank R. Page 2003(a). During this meeting, the trustee places the debtor under oath and both the trustee and creditors can ask questions. The debtor must attend the meeting and answer questions about their financial affairs and the proposed terms of the plan. 11 U.S.C. §343. If a married couple files a joint application, both must attend the creditors' meeting and answer questions. To maintain their independent judgment, bankruptcy judges are prohibited from attending creditors' meetings. 11 USC §341(c). The parties generally resolve problems with the plan during or shortly after the creditors' meeting. In general, the debtor can avoid problems by making sure the application and plan are complete and accurate, and by consulting with the trustee before the meeting.

In a Chapter 13 case, unsecured creditors must file their claims with the court within 90 days after the first scheduled meeting of creditors in order to participate in the distribution of the estate. lined Bank R. page 3002(c). However, a government entity has 180 days from the date the case was filed to file a Proof of Claim. 11 U.S.C. §502(b)(9).

After the creditors' meeting, the debtor, the chapter 13 trustee, and any creditors who wish to attend appear in court for a hearing on the debtor's chapter 13 repayment plan.

The Chapter 13 Plan and Confirmation Hearing

Unless the court grants an extension of time, the debtor must submit a payment plan with the application or within 14 days of the application being filed. lined Bank R. S. 3015. A plan must be submitted to the court for approval and must provide for regular lump sum payments to the trustee, usually bi-weekly or monthly. The trustee then distributes the funds to creditors in accordance with the terms of the plan, potentially offering creditors less than full payment of their claims.

There are three types of claims: priority, guaranteed, and unsecured. Priority claims are those that are given special status by bankruptcy laws, such as most bankruptcy taxes and costs. (3) Secured claims are claims in which the creditor has the right to recover certain assets (ie collateral) if the debtor defaults on the underlying claim. Unlike secured loans, unsecured loans are basically those in which the creditor does not have special collection rights over the private assets of the debtor.

The plan must pay primary claims in full unless a specific primary creditor agrees to a different treatment of the claim or, in the case of domestic support, unless the debtor assumes all "available income" (see below) to the five year plan. .11 USC §1322(a).

If the borrower wishes to retain the bond securing a particular loan, the plan must provide that the holder of the secured loan receive at least the value of the bond. If the obligation underlying the secured claim was used to purchase the security (for example, an auto loan) and the debt arose within specified time periods before filing for bankruptcy, the plan must provide for payment of the entire debt, not just the collateral value (which may be less due to depreciation). Payments to certain secured creditors (ie, the mortgage lender) may be made according to the original loan repayment schedule (which may be longer than the schedule) subject to catch-up delays during the schedule. The debtor should consult an attorney to determine the proper treatment of claims guaranteed by the plan.

The plan does not have to pay unsecured claims in full as long as it provides that the debtor will pay all projected "available income" during an applicable "commitment period" and as long as unsecured creditors receive at least as much as they would receive under the plan. plan. if the debtor's property under Chapter 7. 11 U.S.C. §1325. In Chapter 13, "disposable income" is income (other than child support received by the debtor) less amounts reasonably necessary to support the debtor or their dependents and less charitable contributions up to 15% of income gross debtor debtor. If the debtor operates a business, the definition of disposable income excludes amounts required for normal operating expenses. 11 USC §1325(b)(2)(A) and (B). The "applicable commitment period" depends on the debtor's current monthly income. The applicable commitment period must be three years if the current monthly income for a family of the same size is less than the national average, and five years if the current monthly income is greater than that of a family of the same size. 11 USC §1325(d). The plan can only be shorter than the applicable commitment period (three or five years) if the unsecured debt is paid off in full in a shorter period of time.

Within 30 days of filing for bankruptcy, the debtor must make plan payments to the trustee, even if the plan has not yet been approved by the court. 11 USC §1326(a)(1). If the secured loan or lease payments are due before the debtor's plan is confirmed (typically house and car payments), the debtor must make the appropriate protection payments directly to the secured creditor or landlord, deducting the amount paid from the amount that would otherwise be paid to the Identity administrator.

Within 45 days of the creditors' meeting, the bankruptcy judge must hold an approval hearing and determine if the plan is viable and meets the approval standards established in the Bankruptcy Law. 11 USC §§1324, 1325. Creditors will receive 28 days notice of the hearing and may object to the confirmation. Lined Bank R. Page 2002(b). While a number of objections can be raised, the most common are that the payments offered under the plan are less than what creditors would receive if the debtor's assets were liquidated, or that the debtor's plan did not project everything. The debtor's disposable income is tied to the plan for a commitment period of three or five years.

If the court affirms the plan, the chapter 13 trustee will distribute the funds received "as soon as possible" according to the plan. 11 USC §1326(a)(2). If the court refuses to confirm the plan, the debtor may file an amended plan. 11 USC §1323. The debtor may also convert the case into a Chapter 7 liquidation proceeding. (4) 11 USC §1307(a). If the court refuses to confirm the plan or the amended plan and instead dismisses the case, the court may authorize the trustee to withhold some of the money for expenses, but the trustee must return the remaining money to the debtor (other than money already paid or money owed). to creditors). 11 USC §1326(a)(2).

Occasionally, a change in circumstances may affect the debtor's ability to make scheduled payments. For example, a creditor may object to or threaten a plan, or the debtor may have inadvertently failed to list all creditors. In such cases, the plan may be changed before or after confirmation. 11 USC §§1323, 1329. A post-certification change is not limited to the debtor's initiative, but can be made at the request of the trustee or an unsecured creditor. 11 USC §1329(a).

make the plan work

The terms of a confirmed plan are binding on the debtor and any creditors. 11 USC §1327. Once the court confirms the plan, the debtor must make the plan a success. The debtor must make regular payments to the trustee, either directly or through deduction from wages, which requires adjustment to live on a fixed budget for an extended period of time. Although confirmation of the plan gives the debtor the right to retain the property while payments are made, the debtor cannot incur any new debt without consulting the trustee because additional debt could affect the debtor's ability to complete the plan. 11 USC §§1305(c), 1322(a)(1), 1327.

A debtor can make plan payments through payroll deductions. This practice increases the likelihood that payments will be made on time and the borrower will complete the plan. In either case, if the debtor fails to make payments due under the approved plan, the court may dismiss the case or convert it to a liquidation proceeding under Chapter 7 Bankruptcy. 11 USC §1307(c). The court may also dismiss or commute the debtor's case if the debtor fails to meet internal support obligations after filing (for example, 11 USC §§1307(c) and (e), 1308, 521.

Chapter 13 dismissal

Bankruptcy law regarding the scope of Chapter 13 relief is complex and has undergone major changes recently. Therefore, debtors should consult a competent attorney before filing claims regarding the scope of Chapter 13 relief.

A Chapter 13 debtor is entitled to relief by completing all payments under the Chapter 13 plan provided the debtor: (1) certifies (if applicable) that all domestic obligations owed have been discharged prior to issuance of such certification; (2) you did not obtain discharge of a prior case filed within a specified time period (two years for prior Chapter 13 cases and four years for prior Chapter 7, 11, and 12 cases); and (3) has completed an approved course in financial management (if the United States trustee or bankruptcy trustee for the debtor's district has determined that such courses are available to the debtor). 11 USC §1328. However, the court will not discharge you until, after notice and hearing, it determines that there is no reason to believe that proceedings are pending that would limit the release of the debtor's home equity. 11 USC §1328(h).

The discharge releases the debtor from all debts provided for in the plan or discharged (under section 502), with limited exceptions. Creditors who have been notified in whole or in part pursuant to the Chapter 13 plan will no longer be able to initiate or continue any legal or other action against the debtor to collect the settled liabilities.

Generally, the discharge releases the debtor from all debts covered or disallowed by the plan, except for certain debts referred to in 11 U.S.C. §1328. Unpaid Chapter 13 debt includes certain long-term obligations (such as drunk driving or being under the influence of drugs and restitution debts or fines included in the debtor's felony conviction. To the extent they are not fully covered by the Chapter 13 plan, are paid, the debtor remains responsible for those debts even after the bankruptcy proceeding is complete: debts for money or property obtained under false pretenses, debts for fraud or embezzlement acting as trustee, and debts for restitution or damages incurred in adjudication of a civil proceeding for intentional or malicious acts by the debtor that caused personal injury or death, unless a creditor files an action and prevails to have those debts declared non-cancellable USC §§1328 , 523(c), Ge feeds Bank R. page 4007(c).

Relief in a Chapter 13 case is somewhat more extensive than in a Chapter 7 case. Debts that are excusable in a Chapter 13 but not in Chapter 7 include debts for willful and malicious damage to property (as opposed to a person), debts that have arisen to settle non-cancellable tax obligations and debts due to property agreements in divorce or separation proceedings. 11 USC §1328(a).

Chapter 13 Release From Difficulty

After a plan is approved, circumstances may arise that prevent the debtor from completing the plan. In such situations, the debtor can apply to the court for a "hardship waiver." 11 USC §1328(b). Generally, such release is only available if: (1) the debtor's failure to pay is due to circumstances beyond the debtor's control and beyond the debtor's control; (2) creditors have received at least as much as they would have received in a Chapter 7 liquidation proceeding; and (3) a plan change is not possible. An injury or illness that prevents employment sufficient to self-fund a modified plan may be the basis for a hardship exemption. Hardship relief is more limited than the exemption described above and does not apply to debts that are not excusable in a Chapter 7 case. 11 USC §523.

Walnuts

1. The "current monthly income" received by the debtor is a term defined in the Bankruptcy Code and means the average monthly income received in the six months prior to the opening of the bankruptcy proceeding, including periodic contributions to the non-debtor's household expenses. and including the Debtor spouse's income if claiming jointly, but excluding Social Security income or specific payments made because the Debtor was a victim of specific crimes. 11 USC §101(10A).
2. In North Carolina and Alabama, bankruptcy trustees perform functions similar to those of US trustees in the remaining forty-eight states. The bankruptcy trustee program is administered by the US Office of the Clerk of Courts, while the US trustee program is administered by the Department of Justice. For purposes of this publication, references to US trustees also apply to receivers.
3. Section 507 sets out 10 categories of unsecured claims that Congress has given priority to other unsecured claims for public policy reasons.
4. Conversion from a Chapter 13 case to a Chapter 7 case will cost $25.