There are numerous Chapter 13 bankruptcy rules to follow. First, this is often the option chosen by people who have a lot of secured debt, such as car loans and mortgages, and who want to keep that property. It is intended to give a debtor time to catch up past due payments over a period of 3-5 years, while keeping secured property like houses and cars.
Question: What is Chapter 13 Bankruptcy?
Answer: Also referred to as a wage earner’s plan, it allows individuals with regular income to reorganize their debt so as to repay all or part of their debt over three to five years. This section of the bankruptcy code was enacted for individuals who desire to pay their debts but, due to a loss of job, disability etc., have gotten behind on their payments. It allows individuals with regular income an opportunity to “catch up” delinquent payments and to restructure their debt. Chapter 13 works like a consolidation loan. The individual creates a plan and makes the plan payments to a chapter 13 trustee who then distributes payments to creditors.
Question: How Do I Know if I am Eligible to File Chapter 13?
Answer: Any individual is eligible to file a chapter 13 petition. There are limitations on debt which are currently $360,475 for total unsecured debt and less than $1,081,400 for total secured debt. If you are close to these limits, check the current amounts as they are adjusted at regular intervals to account for changes in the consumer price index.
You must also show that, within 180 days before filing, you have taken the credit counseling course from a credit counseling agency that has been court approved. This requirement cannot be waived unless there exists, an emergency situation.
Question: What are the Rules for Filing the Chapter 13 Petition?
Answer: You can obtain official information regarding the general and local rules for free, by accessing the United States Federal Bankruptcy court website at http://www.uscourts.gov/FederalCourts/Bankruptcy.aspx The site will provide an overview and allow you to download the forms you need along with instructions for filling out those forms. The site will also give you current information about filing fees (including rules for paying the fee in installments) and filing deadlines.
Question: How do I begin?
Answer: A chapter 13 case is commenced by the filing of a petition with the bankruptcy court in the district where the debtor has is domiciled or resides.
Question: What Will I need to Complete My Petition?
Answer: In order to complete the all of the forms, the debtor will need to compile the following information:
1. A complete list of all creditors along with the amounts and type of claim
2. Complete and detailed information about the debtor’s income
3. A complete list of the debtor’s property, including jointly owned property
4. A detailed schedule of monthly living expenses.
Note: If the petitioner is married the petitioner must gather this information for their spouse even if that spouse is not filing. The court, the trustee and creditors need information for the entire household so that they can evaluate the household’s financial position.
Question: What Happens Next?
Answer: Upon filing, an independent trustee is appointed by the bankruptcy court to administer the case. The Debtor(s) receive an “automatic stay” which stops virtually all collection proceedings against the debtor or the debtor’s property.
Question: When do I need to Submit My Chapter 13 Plan?
Answer: The debtor is required to file a repayment plan with the initial petition or within 15 days after the petition is filed, unless the court grants an extension.
Question: Do I Need to Go to Court?
Answer: Sometime between three and eight weeks later (depending on the trustee’s calendar) the chapter 13 trustee will schedule a creditors’ meeting. This is called a “341” hearing. At this meeting, the parties typically resolve issues with the plan. Note: a debtor can eliminate possible problems by carefully completing the petition and plan so that they are complete and error free.
Upon completion of the meeting of creditors, the plan needs to be submitted to the court for its final approval. In order to be approved, the plan must provide for regular payments of a predetermined amount, made to the trustee.
Question: When Do I Start Making Payments?
Answer: The debtor should be prepared to make the first payment within 30 days after filing, even if the plan has yet to be approved. Payments are made to the trustee.
As soon as the court confirms the plan, the trustee will dispense funds already accumulated under the plan to the appropriate creditors. The debtor is entitled to a discharge upon fulfillment of all payment obligations under the chapter 13 plan so long as all conditions were met. The debtor is thus released from all debts provided for by the plan or disallowed, with limited statutory exceptions.
Question: What happens if I stop paying or can’t pay the Trustee?
Answer: If the problem is temporary, contact the Trustee and ask to work out an alternate. If you cannot work out an alternative or simply fail to make required payments, the Trustee will have your case converted to a Chapter 7 or completely dismissed. It is important to communicate with the Trustee. If you are operating in good faith the trustee will usually work with you.
In closing, it is important to be honest with yourself about your ability to create a realistic plan and complete its payment schedule. Read all you can about the process so you understand it. If you are unsure, seek the advice of a bankruptcy attorney.