Chapter 13 Bankruptcy
If you are currently struggling with overwhelming debt, you may be considering filing either a Chapter 7 or Chapter 13 bankruptcy. Chapter 7 bankruptcy is often referred to as a liquidation or straight bankruptcy in which most of your personal or business possessions are sold to pay off creditors.
However, under Chapter 13 bankruptcy, often called “reorganization”, the debtor works with the bankruptcy court to achieve a plan to repay creditors within a three-to-five-year period. Chapter 13 bankruptcy begins by filing a petition with the bankruptcy court in the jurisdiction in which you live. Along with your petition of bankruptcy, you will also need to file a schedule of your assets and liabilities, a schedule of current income and expenditures, a schedule of executory contracts and unexpired leases and a statement of your financial affairs. You will also need to file a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing and a record of any interest the debtor has in federal or state qualified education or tuition accounts. You, as the filer, will need to provide the Chapter 13 bankruptcy trustee with a copy of your tax return for the most recent tax year. A married couple may file a joint petition or individual petitions. Forms may be purchased at some office stores or downloaded from the Internet at www.uscourts.gov/bkforms/index.html.
The bankruptcy court charges a $235 case filing fee plus a $46 miscellaneous administrative fee. Normally, these fees must be paid to the clerk of the court upon filing. However, with the court’s permission, they may be paid in installments. If a joint petition is filed, only one set of fees are charged. You need to know that failure to pay these fees may result in dismissal of your Chapter 13 bankruptcy case.
In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, you will need to gather the following information:
- A list of all creditors and the amounts and nature of their claims
- The source, amount, and frequency of the debtor’s income
- A list of all of the debtor’s property
- A detailed list of such monthly living expenses as food, clothing, shelter, utilities, taxes, transportation and medication
When an individual files a Chapter 13 bankruptcy, a trustee is appointed to administer the case. The trustee evaluates the case and serves as a disbursing agent, collecting payments from the debtor and making distributions to creditors.
Filing your petition under Chapter 13(or any chapter of bankruptcy) “automatically stays” most collection actions against you. As long as the stay remains in effect, creditors may not initiate or continue lawsuits, wage garnishments or contact you demanding payment. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are on your list. The Fair Debt Collection Practices Act establishes guidelines under which debt collectors may perform their business, defines consumer rights pertaining to debt collection and sets down penalties and remedies for violations.
You may decide to use a Chapter 13 bankruptcy to save your home from foreclosure since the automatic stay stops the foreclosure proceeding as soon as the bankruptcy is filed. You will then have the opportunity to bring the past-due payments current over a reasonable amount of time. However, your home may still be vulnerable to foreclosure if the mortgage company completes the foreclosure sale under state law before your bankruptcy is filed. You could also lose your home if you fail to make the regular mortgage payments due after the bankruptcy filing.
Between 21 and 50 days after the Chapter 13 bankruptcy filing, the trustee will assemble a meeting of creditors. During this meeting, the trustee places the debtor under oath, and both the trustee and creditors may ask questions. The debtor is obligated to attend the meeting and answer questions regarding his financial affairs and the proposed repayment plan. If a married couple files a joint petition, they both must attend the creditors’ meeting and answer any questions. The bankruptcy judge is prohibited from attending the creditors’ meeting. By ensuring that the petition and plan are complete and accurate and by consulting with the trustee prior to the meeting, you can be fairly sure that there will be no problems with which to contend.
After the meeting of creditors, the debtor, the Chapter 13 bankruptcy trustee and those creditors who wish to attend will come to court for a hearing on the Chapter 13 repayment plan. This payment plan, which includes all agreed-upon transactions, must start within 30-45 days after the bankruptcy case begins. The payment plan spells out how all of your debts and liens, as well as any assets will be handled. The Chapter 13 repayment plan must meet a few requirements, including the provision that all
unsecured creditors will receive at least as much through the Chapter 13 bankruptcy as they would in a Chapter 7 bankruptcy. During this three-to-five-year repayment period, creditors have no rights to the debtor’s property except through permission of the bankruptcy court.
To qualify to file bankruptcy under Chapter 13, the filer must prove debt of less than $383,175.00 of unsecured debt and less than $1,149,525.00 of secured debt (as of April 2013). These debt limits are subject to annual cost of living increase.
As with the filing of any bankruptcy, a record of a Chapter 13 bankruptcy filing remains on your credit report for up to 10 years. However, it is still very likely that you will be able to qualify for a new credit card, mortgage or auto loan, with the permission of the bankruptcy court.
After speaking with an experienced bankruptcy representative at Client First Bankruptcy, you will soon discover that filing for your personal or business Chapter 13 bankruptcy can open new doors to a more secure financial future. Please call us today toll-free at 800-383-6004.