Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a debt reorganization case for individuals that have regular income. In Chapter 13, a debtor will file a payment plan that sets forth how the debtor proposes to pay his or her debts. In many cases, a debtor will not be repaying debts in full, but rather will be paying a small percentage of the outstanding debt. Repayment plans last from three to five years. Corporations, LLCs and partnerships are not eligible to file Chapter 13.
Below is a general description of the framework of a Chapter 13 case. If you want to find out about your specific situation and whether you may benefit by filing a Chapter 13 bankruptcy, call Robert Tardif at Bankruptcy Bodyguard.
Who Can Be Helped in Chapter 13?
Although a Chapter 7 bankruptcy is often preferred because it is quicker and cheaper, a Chapter 13 bankruptcy case can provide flexibility and benefits not available in Chapter 7, including
- Catching up and curing payment defaults on home and car loans;
- Paying otherwise non-dischargeable debts, such as recent taxes and support obligations, over time;
- Keeping non-exempt assets that may be forced to surrender in a Chapter 7 case due to the shorter repurchase term allowed in a Chapter 7 case;
- Discharging debts that are non-dischargeable in a Chapter 7 case, but that are dischargeable in Chapter 13, including debts arising from marital settlement agreements (not support obligations) and certain fines and penalties owed to the government (not criminal fines);
- Protecting a non-filing co-signer, since Chapter 13 provides for a stay of collection against a co-debtor without permission from the court.
Eligibility for Chapter 13
Although other factors may come into play, in most cases, an individual may file Chapter 13 bankruptcy unless he or she
- Has received a discharge within 2-4 years, depending on the Chapter under which the previous bankruptcy was filed; or
- Has unsecured debt higher than $383,175.00 or secured debt higher than $1,149,525.00. These debt limits are adjusted every three years.; or
- Has failed to file federal and state income tax returns for the four years prior to filing the case;
- Has no source of regular income to support a good faith payment under the plan.
Chapter 13 Process
The first step in a Chapter 13 case is the filing of the petition, schedules, statements and related documents. In addition to listing the names and addresses of creditors, the debtor lists all assets he or she owns and places values on each asset. In addition, the debtor files a Chapter 13 Plan, which reflects how the debtor proposes to deal with each debt.
About 30 days after the case is filed, a creditors’ meeting will be held. Generally, no creditors actually appear. The meeting is an opportunity for the Chapter 13 Trustee to ask the debtor questions under oath. The meeting generally lasts between 5 and 10 minutes. The Trustee represents the interests of the creditors and is trying to determine whether your plan proposes to pay creditors what is required and whether you can, in fact, make the payments.
After the creditors’ meeting, a confirmation hearing will be held by the court at which time the Judge approves or disapproves the plan. Prior to the hearing, the Trustee will either recommend that the court approve or disapprove the plan. If the Trustee recommends that the court not approve the plan, normally discussions take place to address the Trustee’s concerns. Sometimes a slight increase in the monthly payment is all that is needed. If the plan is approved, the debtor makes the required monthly payment for the balance of the term of the plan.
How is a Chapter 13 Payment Determined?
A common question that arises is how the Chapter 13 monthly payment is determined. In general, the starting point is that the amount of the payment is the higher of the disposable monthly income amount reflected after completing the means test or the value of the debtor’s non-exempt assets. There are several other factors that also impact the amount, including:
- Mortgage or car loan arrears that are being cured during the life of the plan;
- Priority debts, such as taxes or support obligations, which must be paid in full upon completion of the plan;
- Administrative expenses such as the Trustee’s fee and any attorney’s fees put into the plan; and
- Length of the Chapter 13 plan. If payments are stretched out over 60 months as opposed to 36 months, the monthly payment will be lower.
Unless something undisclosed or unexpected arises, an experienced bankruptcy attorney should be able to arrive at a monthly payment for the proposed plan that is reasonably close to the figure that ultimately is approved by the court.
Entry of Discharge
In a Chapter 13 case, the entry of a discharge is not entered until after completion of the monthly payments. Entry of the discharge means that the debtor is no longer personally obligated to pay dischargeable debts. Some debts are deemed to be non-dischargeable, including student loans and future support obligations. Chapter 13 also does not discharge a long-term debt that extends beyond the term of the plan, such as a mortgage on a home you intend to keep.
If you would like to learn more about Chapter 13 bankruptcy, give us a call at (239) 362-2755 to set up a free consultation where we will outline how we can help get your financial life back on track.