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Chapter 13 Filing

A chapter 13 bankruptcy (wage earner’s plan) enables individuals with regular income to develop a plan to repay all or part of their debts. Here, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” If the debtor’s current monthly income is greater than the applicable state median, the plan generally must be for five years. During these time periods, the law forbids creditors from starting or continuing collection efforts.

Chapter 13 offers various remedies for financially distressed individuals. Chapter 13 offers debtors the opportunity to save their homes from foreclosure by creating a repayment plan to cure delinquent mortgage payments. However, the debtor must make the regular mortgage payments that come due after the chapter 13 filing commences. Chapter 13 also allows individuals to reschedule secured debts and extend them over the life of the chapter 13 plan, allowing for lower payments. Chapter 13 also has a special provision that protects third parties (co-signers) who are liable with the debtor on “consumer debts.” Finally, chapter 13 consolidates the debtor’s outstanding debt under one repayment plan, streamlining the payment process.

A chapter 13 case begins by filing a petition with the bankruptcy court serving the area where the debtor has a residence. Any individual is eligible for chapter 13 relief as long as the individual’s unsecured debts are less than $360,475 and secured debts are less than $1,081,400. A corporation or partnership may not be a chapter 13 debtor. In addition to providing the assigned case trustee with copies of relevant tax returns or transcripts, the debtor must also file with the court:

• Schedules of assets and liabilities;
• Schedule of current income and expenditures;
• Statement of financial affairs; and,
• Schedule of executory contracts and unexpired leases.

Individual debtors with primarily consumer debts have additional document filing requirements, including the following:

• A certificate of credit counseling;
• 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;
• 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.

In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must provide the following information:

• A list of all creditors and the amount and nature of their claims;
• The source, amount, and frequency of the debtor’s income;
• A list of all of the debtor’s property; and,
• A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

When an individual files a chapter 13 petition, an impartial trustee is appointed to administer the case. The chapter 13 trustee both evaluates the case and serves as a disbursing agent, collecting payments from the debtor and making distributions to creditors.

Filing the petition under chapter 13 “automatically stays” (stops) most collection actions against the debtor or the debtor’s property. However, filing the petition does not stay all types of actions, and may be effective only for a short time in some situations. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor.

Between 20 and 50 days after the debtor files the chapter 13 petition, the trustee will hold a meeting of creditors. During this meeting, the debtor testifies under oath regarding his or her financial affairs and the proposed terms of the plan. In order to preserve their independent judgment, bankruptcy judges are prohibited from attending the meeting of creditors. The parties typically resolve problems with the proposed repayment plan either during or shortly after the creditors’ meeting.

The debtor must file a repayment plan with the petition or within 15 days after the petition is filed. The repayment plan must be submitted for court approval and must provide fixed payments to the trustee on a biweekly or monthly basis. If approved, the trustee then distributes the funds to creditors according to the terms of the plan. If the court declines to confirm the plan, the debtor may file a modified plan. Despite paying creditors less than full payment on their claims, the trustee pays out claims based on priority, where certain classes of claims get paid out first – priority claims, secured claims, then unsecured claims if there remains sufficient disposable income over the applicable commitment period.

As a general rule, the discharge releases the debtor from all debts provided for by the plan or disallowed, with the exception of certain debts. Debts not discharged in chapter 13 include certain long term obligations (such as a home mortgage), debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor’s conviction of a crime.

Due to the complexity of federal and state bankruptcy law, it is best that you contact an experienced attorney to guide you through the process If you feel that your bills have just become too much to bear.