If you are an individual with regular income from your job, benefit payments or rental income, your secured debt is less than $922,975 and your unsecured debt is less than $307,675, you may qualify for Chapter 13 bankruptcy.  You must provide proof of your income to the court-appointed trustee by presenting a copy of a federal tax return or transcript of a tax return for the previous four years.

Procedures

A Chapter 13 debtor begins the process by filing a Petition and schedules, as well as paying a filing fee. The case is filed in the bankruptcy court serving the area where the debtor has a domicile or residence. A husband and wife may file a joint petition or individual petitions. In addition to a possible administrative fee, you will be required to pay a filing fee of $189.

Although you will be allowed to keep all of your property under Chapter 13, you will be required to present a repayment plan to the bankruptcy court describing how you intend to pay back your debts from the income you earn after filing the bankruptcy case. If the court-appointed trustee or an unsecured creditor objects to your plan, you must either pay the full amount of your unsecured claims with interest or contribute all of your disposable income during the payment period to your repayment plan.

Upon the filing of the petition, a trustee is appointed to administer the case. A primary role of the chapter 13 trustee is to serve as a disbursing agent, collecting payments from debtors and making distributions to creditors. Once filed, no creditors may contact you about your debts. All action to collect the debts is “stayed” by the filing of the bankruptcy. The 2005 Act introduces new exceptions to the “automatic stay” concerning enforcement of child support and spousal support payments.

The 2005 Act requires additional production of documents, including (a) a certificate of receipt of § 342(b) Notice, (b) receipts for payments received from your employer 60 days before the filing of the petition (c) a statement of your monthly net income itemized to show how calculated, (d) a statement of any anticipated increase in income or expenses in the 12 months following filing the petition, (e) a copy or transcript of your most recent federal income tax return, and (f) a certificate of “briefing” from an approved credit counseling agency and any repayment plan developed by said agency. Said “briefing” must be received by the debtor from an agency on the Court’s approved list in the 180 days prior to the filing of the bankruptcy petition. Under the 2005 Act, failure to file all required documentation within 45 days after filing the petition will normally result in the dismissal of the case on the 46th day.

A plan of repayment must be filed with the petition or within 15 days thereafter. The Chapter 13 plan must provide for the full payment of all claims entitled to priority.  Plans, which must be approved by the court, provide for payments of fixed amounts to the trustee on a regular basis, typically biweekly or monthly. The trustee then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims.

After filing, a meeting of creditors is scheduled and held usually within 20 to 40 days of filing the petition.  A notice of the place and time will be provided to the debtor by the Court. The meeting of creditors is not conducted by a judge, but by the trustee or representative of the trustee.  Creditors are allowed to attend and ask questions. All debtors must attend or the case may be dismissed.  The trustee may ask questions to make sure that you understand bankruptcy and that you have disclosed all assets and debts.  Questions about your ability to make the plan payments may also be asked.

Unsecured creditors who have claims against the debtor must file their claims with the court within 90 days after the first date set for the meeting of creditors.

The Chapter 13 “Plan”

After the meeting of creditors is concluded, the bankruptcy judge must determine at a confirmation hearing whether the plan is feasible and meets the standards for confirmation set forth in the Bankruptcy Code. Creditors may object to confirmation.

You must begin making payments to the court-appointed trustee for distribution to your creditors no later than 30 days after you file your bankruptcy petition or plan. Your plan payments must be equal to at least the amount that your creditors would have received if you had filed bankruptcy under Chapter 7. In order to fulfill your repayment plan, you must consult the court-appointed trustee before you incur any significant new credit obligations. Under the 2005 Act, you must file a new statement of income and expenses on the anniversary date of your confirmed plan. The 2005 Act generally extends the repayment period to a set period of five years.

Even if the plan has not yet been approved by the court, the debtor must start making payments to the trustee within 30 days of the petition’s filing.  If the plan is not confirmed, the debtor has a right to file a modified plan.  If the plan or modified plan is not confirmed and the case is dismissed, the court may authorize the trustee to retain a specified amount for costs, but all other funds paid to the trustee are returned to the debtor.

Once the court confirms the plan, it is the responsibility of the debtor to make the plan succeed. The debtor must make regular payments to the trustee, which will require adjustment to living on a fixed budget for a prolonged period. Furthermore, while confirmation of the plan entitles the debtor to retain property as long as payments are made, the debtor may not incur any significant new credit obligations without consulting the trustee, as such credit obligations may have an impact upon the execution of the plan.

Case Closed

A debtor may consent to the deduction of the plan payments from the debtor’s paycheck, to be paid directly to the bankruptcy trustee. Experience has shown that this practice increases the likelihood that payments will be made on time and that the plan will be completed. In any event, failure to make the payments in accordance with the confirmed plan may result in dismissal of the case or its conversion to a liquidation case under Chapter 7 of the Bankruptcy Code. The Chapter 13 case ends when dismissed, converted, or when the debtor pays off all debts according to the terms of the plan.

Previously discussed:

Chapter 13 is for persons with a regular income, who desire to pay debts over a period of time under the supervision of the Court.  Under this chapter, debtors are permitted to repay creditors, in full or in part, in installments generally over a five-year period (extended from three years by the 2005 Act), during which time creditors are prohibited from starting or continuing most collection efforts. The 2005 Act, due to the “means test” for all attempted Chapter 7 bankruptcies, will force some Chapter 7 filings to be converted to Chapter 13.