Chapter 13

Chapter 13 is often called reorganization. In a Chapter 13, you still pay your debts but only a percentage of that debt. All of your debt is consolidated and you only have a single payment each month. You no longer pay each creditor individually. You make a payment to the bankruptcy court and they pay all your creditors.

I filed bankruptcy less than 6 years ago but I have serious debt. What can I do? You can file a Chapter 13 bankruptcy. Unlike Chapter 7, there is no time requirement on how often you can file a Chapter 13.

CHAPTER 13 Frequently Asked Questions

CHAPTER 13 Frequently Asked Questions

What is a Chapter 13?
Chapter 13 is a court approved plan in which all or part of your debts are repaid. The creditors are prohibited from collecting their claims from you. You make regular payments to a Chapter 13 trustee who collects the money and pays it to the creditors in the manner provided in the plan. Upon completion of payment as provided in the plan your debts are discharged in bankruptcy.

How is a Chapter 13 different from a Chapter 7 bankruptcy?
In Chapter 7 you are allowed to keep certain exempt property while non-exempt property is sold and used to pay debts. In most Chapter 7’s there is little or no non-exempt property and debtor has the benefit of retaining his property without paying anything to the trustee in bankruptcy. You have a choice between surrendering that is giving back secured property and calling it even or keeping and paying for secured property, reaffirming.

Why file a Chapter 13 bankruptcy?
Chapter 13 is useful when:
  1. You are ineligible to file a chapter 7 because it has been less than 6 years since you last filed a chapter 7.
  2. When you have valuable non-exempt property that you would lose in a chapter 7. For example, your exemption in your home is $5000 of equity above the mortgage. The exemption is $10,000 for husband and wife in their home. If you have $50,000 of equity in your home and filed a Chapter 7, you would lose your home.
  3. When you are threatened by a foreclosure on your home, Chapter 13 will give you 24 months to catch up the payments on which you are behind and other expenses of the foreclosure.
  4. When you wish to pay all or most of your unsecured debts and have the income to do so in 60 months.

Why is Chapter 13 bankruptcy better than a private debt collection service?
In private debt collection, creditors have to agree to delaying payment, reducing interest, or reducing payment. In Chapter 13, the Judge orders creditors to comply with the payment plan you have designed and the Judge has approved. The payment plan can do any of the following: reduce your monthly payments, reduce interest, pay back less than all of your unsecured debt, pay back secured debt in full, split a secured claim into secured debt and unsecured debt based on the value of the security. Further, creditors who have been notified of your Chapter 13 and do not timely file a claim can be barred from ever collecting from you. The Court regulates the fees charged by your attorney whereas the fees of private debt collection are unregulated and often larger than fees charged by your attorney. Also your attorney fees are paid back through the plan and not up front as many private debt collection services require.

What debts are not dischargeable under Chapter 13?
  1. Debts paid outside of the plan.
  2. Debts for alimony, support and maintenance.**
  3. Debts for death or personal injury caused by drunk driving.**
  4. Debts for court ordered restitution or criminal fines.**
  5. Debts for school loans.**
  6. Installments debts in which the last payment is due after the completion date of the plan.
  7. Debts made while the plan was in effect and not paid under the plan.

**The plan will provide for payment of these debts in full.

What is a Chapter 13 plan?
A written plan prepared by your lawyer that states monthly payments to be paid to the Chapter 13 trustee, the number of monthly payments, how much will be paid to each creditor, and which creditors will be paid outside of the plan.

What is a Chapter 13 trustee?
A Chapter 13 trustee is a person appointed by the federal court to collect payments from the debtors and make payments to the creditors in a manner set forth in the plan.

What debts may be paid under a Chapter 13?
All debts.

Must all debts be paid in full under a Chapter 13 plan?
No. Alimony, maintenance, support, non-dischargeable taxes, fully secured debts must be paid in full. However, unsecured debts need only be paid in an amount the debtor can reasonably afford.

How long does a Chapter 13 plan last?
Usually 5 years, unless all debts can be paid off in full in less time.

What are the fees charged in a Chapter 13 bankruptcy?
In 2004, the court’s filing fee is $195 and the attorney’s fee approved by the court in most cases is $1400. The court usually raises the attorney’s fees each year. However, in complicated cases, such as those of a person who owns a business or has extremely complicated business affairs, you and your attorney may agree to a higher fee and the court may approve this higher fee if it believes it is justified. Additional fees may be charged if additional services are rendered after the plan is confirmed (approved) by the court.

Your attorney will require that you pay the filing fee and a small retainer. The attorney will then pay that retainer to the trustee when your plan is approved. The balance of your attorney fee is paid to the attorney by the trustee from your plan payments.

The trustee’s fee is 4.25% of all payments under the plan.

Will a person lose any property under Chapter 13?
Usually not. However, the debtor may propose to sell property and turn the proceeds over to the Chapter 13 trustee in lieu of some or all of the payments.

How does chapter 13 affect collection proceedings and foreclosures?
All collections proceedings are stopped, as well as foreclosures. Through the bankruptcy plan, you have 24 months to catch up on the amount you are behind on in any home foreclosure. Your other debts are paid during the remaining months of your plan.

Is my employer notified when he files under Chapter 13?
Yes. The court will require the debtor’s employer to make the payments to the Chapter 13 on the debtors behalf.

Does I lose any legal rights by filing a Chapter 13?

Will I have to appear in court?
You have to appear at a 341 meeting with the Chapter 13 trustee. On the same day, any debtor that proposes to pay less than 70% of his unsecured debt will be required to go to a confirmation meeting in the courtroom with the judge. Often the Chapter 13 trustee will talk to the judge before the hearing and your plan will be approved without seeing the judge. Occasionally, your lawyer may have to explain some aspect of your plan to the judge formally in court. The judge may even ask you a few simple questions. Be polite and courteous.

How will I be treated by the Chapter 13 trustee and judge?
With courtesy, respect, and dignity. The Chapter 13 trustee is only paid if the court approves your plan. He will work with your lawyer at the 341 meeting to make sure you have a plan that the judge will confirm (approve). If your plan is not approved, your trustee does not earn a fee. The judge will also be respectful and courteous, it is a feather in his cap every time a Chapter 13 plan is approved and successfully completed. He wants you to have a workable plan. The purpose of bankruptcy is to give a fresh start.

What if I make new debts or need credit during a chapter 13?
Only two types of credit obligations or debts made after the filing of the case may be included in the Chapter 13 plan. One is taxes that become payable while the case is pending. Second is consumer debts for property or services necessary for the debtors performance under the chapter 13 plan and are approved in advance by the chapter 13 trustee. All other debts must be treated outside the chapter 13 plan.

Can I discontinue the Chapter 13 plan?
You have the right to dismiss your Chapter 13 case or convert it to Chapter 7 at anytime or for any reason. However, a debtor who simply stops making payments may be compelled to make payments or the debtor’s employer may be compelled to make payments and comply with other orders of the court. Therefore, contact your attorney if you wish to discontinue your case.

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