Can I file a Chapter 13 Bankruptcy?
An individual (even if self-employed or operating an unincorporated business) is eligible for Chapter 13 bankruptcy relief as long as the individual’s unsecured debts are less than $336,900.00 and secured debts are less than $1,010,650.00. These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation, partnership, or limited liability company (LLC) may not file a Chapter 13 bankruptcy. Individuals cannot file a Chapter 13 bankruptcy if within 180 days prior to filing the Chapter 13 a prior bankruptcy case was dismissed due to failure to appear before the court or comply with documentation filing requirements. The debtor must also have received credit counseling within the proceeding 180 days of filing your initial bankruptcy.
What is the Chapter 13 Process?
The Chapter 13 preparation and filing process is nearly identical to the Chapter 7 process outlined above. Yet, in addition to the Chapter 7 process, a debtor must also prepare and file a Chapter 13 plan that complies with Sections 1322 and 1325 of the Bankruptcy Code. Namely, the debtor must provide “treatment” for each creditor according to the mandates of the Bankruptcy Code.
What happens next? The filing of any bankruptcy creates an “automatic stay”. This means most collection actions against the debtor or the debtor’s property are stopped. As long as this stay is in effect creditors may not initiate or continue lawsuits for collection of consumer debts. Consumer debts are those acquired for personal, family, or household purposes.
Chapter 13 also contains a special automatic stay provision that protects co-debtors. Unless the bankruptcy court authorizes otherwise, creditors may not seek repayment from any co-signer or responsible individual that shares liability for a consumer debt with the debtor.
The most powerful tool in a Chapter 13 bankruptcy is the ability to save your home from foreclosure. Once the automatic stay is in place all proceedings of foreclosure must stop. The debtor then has the option to bring the past due payments current through the Chapter 13 plan. If you are BEHIND ON YOUR MORTGAGE, and want to save your home you should contact our office immediately. A Chapter 13 bankruptcy must be filed before the foreclosure.
The Chapter 13 Plan and Confirmation Hearing
Unless the court grants an extension you must file a repayment plan within 15 days after your petition was filed. This plan must be submitted for court approval and must provide payments and fixed amounts to the trustee on a regular basis typically monthly.
There are three types of claims: 1) priority, 2) secured, and 3) unsecured.
1. Priority claims are those granted special status by the law such as most taxes, child support, alimony, and bankruptcy administrative fees. Secured claims are those in which the creditor has a lien or mortgage and the right to take back property through foreclosure or repossession. Unsecured claims are those which the creditor has no special rights to collect against particular property that the debtor owns. Priority claims must be paid in full.
2. To keep secured property the creditor must at least receive the value of the property and in certain situations, be paid the full debt amount.
3. The plan need not pay unsecured claims in full as long as it provides the debtor will pay all “projected disposable income” (e.g. monthly net income) over an “applicable commitment period”. The unsecured creditors must also receive at least as much under the plan as they would receive if the debtor’s assets were liquidated in a Chapter 7 bankruptcy.
- Within 30 days of filing a bankruptcy, even if the plan has not yet been approved by the court, the debtor must begin making monthly plan payments to the trustee.
- Within 60 days of the “Meeting of the Creditors” the Chapter 13 trustee must issue an evaluation/recommendation of the debtor’s proposed payment plan.
- A response to the trustee’s evaluation/recommendation must be submitted to the trustee within 30 days of the filing of the evaluation/recommendation. The response must include a proposed stipulated order confirming the Chapter 13 plan signed by all appropriate parties.
- If the trustee or another party refuses to stipulate to the confirmation of the debtor’s plan but the plan still meets the requirements of the bankruptcy code the court will hold a “contested confirmation hearing” to determine whether to the confirm the plan.
- Following confirmation of the plan, the trustee will distribute funds under the plan as soon as practicable.
A Chapter 13 Discharge
A discharge under Chapter 13 bankruptcy is received when application is made by the debtor following the completion of the plan payments/requirements and the issuance of a certificate of eligibility of discharge is provided by the trustee.
A Hardship Discharge
After confirmation of a plan, a debtor may experience financial hardship or other significant change of circumstance. When this happens, a debtor may ask the court to grant a “hardship discharge.” To be eligible for a “hardship discharge”, a debtor must show that their current circumstances resulted from forces beyond their control and that the unsecured creditors have received at least what they would have received in a Chapter 7 bankruptcy.