1.What is a Chapter 13 bankruptcy case and how does it work?
A Chapter 13 bankruptcy case is a proceeding under federal law in which the Debtor seeks relief under Chapter 13 of the Bankruptcy Code. Chapter 13 is the chapter of the bankruptcy Code which allows a person to repay all or a portion of his or her debts under supervision and protection of the Bankruptcy Court. The Bankruptcy Code is the federal law that deals with bankruptcy. A person who filed a Chapter 13 case is called a Debtor. In a Chapter 13 case, the Debtor must submit to the Court a plan for the repayment of all or a portion of his or her debts. The plan must be approved by the Court to become effective. If the Court approves the Debtor's plan, most creditors will be prohibited from collecting their claims from the Debtor. The Debtor must make regular payments to a person called the Chapter 13 trustee, who collects the money paid by the Debtor and disburses it to creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, the Debtor is released from liability for the remainder of his or her dischargeable debts.
3.When is a chapter 13 case preferable to a chapter 7 case?
Chapter 13 is usually preferable for a person who (1) wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time, (2) has valuable nonexempt property or has valuable exempt property securing debts, either of which would be lost in a chapter 7 case, (3) is not eligible under means testing to maintain a chapter 7 case, (4) is not eligible for a chapter 7 discharge, (5) has one or more substantial debts that are nondischargeable under chapter 13 but not under chapter 7, or (6) has sufficient assets with which to repay most of his or her debts, but needs temporary relief from creditors in order to do so.
5.What is a Chapter 13 discharge?
It is a Court Order releasing a Debtor from all of his or her dischargeable debts and ordering creditors not to collect them from the Debtor. A debt that is discharged is one that the Debtor is released from and does not have to pay. There are two types of chapter 13 discharges: (1) a full or successful plan discharge, which is granted to a Debtor who completes all payments called for in the plan, and (2) a partial or unsuccessful plan discharge which is granted to a Debtor who is unable to complete the payments called for in the plan due to circumstances for which the Debtor should not be held accountable. A full Chapter 13 discharge discharges a few more debts than a chapter 7 discharge, while a partial chapter 13 discharge is similar to a chapter 7 discharge.
7. What is a chapter 13 plan?
It is a written plan presented to the bankruptcy Court by the Debtor that states how much money or property the Debtor will pay to the chapter 13 trustee, how long the Debtor's payments to the chapter 13 trustee will continue, how much will be paid to each of the Debtor's creditors, and certain other matters.
8.What is a Chapter 13 trustee?
A Chapter 13 trustee is a person appointed by the United States trustee to collect payments from the Debtor, make payments to creditors in the manner set forth in the Debtor's plan, and administer the Debtor's chapter 13 case until it is closed. In some cases the chapter 13 trustee is required to perform certain other duties. The Debtor is required to cooperate with the Chapter 13 trustee.
9.What debts may be paid under a Chapter 13 plan?
Any debts whatsoever, whether they are secured or unsecured. Even debts that are nondischargeable, such as debts for student loans or child support, may be paid under a chapter 13 plan.
10.Must all debts be paid in full under a chapter 13 plan?
No. While priority debts, such as debts for domestic support obligations and taxes, and fully secured debts must be paid in full under a chapter 13 plan, only an amount that the Debtor can reasonably afford must be paid on most debts. The unpaid balances of most debts that are not paid in full under a chapter 13 plan are discharged upon the completion or termination of the plan.
11.Must all unsecured debts be treated alike under a chapter 13 plan?
No. If there is a reasonable basis for doing so, unsecured debts (or claims) may be divided into separate classes and treated differently. It may be possible to, therefore, to pay certain unsecured debts in full, while paying significantly less on others.
12.How much of a Debtor's income must be paid to the Chapter 13 trustee under a chapter 13 plan?
Usually all of the disposable income of the Debtor and the Debtor's spouse for a three or five year period must be paid to the chapter 13 trustee. Disposable income is income received by the Debtor and his or her spouse that is not deemed to be necessary for the support of the Debtor and his or her dependents.
13.When must the Debtor begin making payments to the chapter 13 trustee and how are the payments made?
The Debtor must begin making payments to the chapter 13 trustee within thirty days after the chapter 13 case is filed with the Court. The payments must be made regularly, usually on a weekly, bi-weekly, or monthly basis. If the Debtor is employed, some Courts require that the payments be made directly to the chapter 13 trustee by the Debtor's employer.
16.What is the difference between a secured creditor and an unsecured creditor?
A secured creditor is a creditor whose claim against the Debtor is secured by a valid mortgage, lien, or other security interest against property that is owned by the Debtor. An unsecured creditor is a creditor whose claim against the Debtor is not secured by a valid mortgage, lien or security interest against the Debtor's property. In other words, a secured creditor has collateral for its claim and an unsecured creditor does not. The basic difference is that a secured creditor may collect all or a portion of its claim from its collateral, while an unsecured creditor may not. It is common for the amount of a secured creditors claim to exceed the value of its collateral. This type of creditor is called a partially-secured (or undersecured) creditor. In chapter13 cases the claims of most partially-secured creditors are divided into secured and unsecured portions. For example, a partially-secured creditor with a $2,000 claim against the Debtor that is secured by collateral that is worth $1,500 has a $1,500 secured claim and a $500 unsecured claim. The only types of partially-secured creditors whose claim may not be treated in this manner are creditors secured by a mortgage on the Debtor's home and certain creditors who advanced funds for the purchase of automobile or other personal property of the Debtor. It is important to differentiate between secured and unsecured claims because they are treated quite differently in chapter 13 cases. Secured claims must be paid in full with interest, while only amounts the Debtor can reasonably afford need be paid to the holders of unsecured claims.
18.How are cosigned or guaranteed debts handled in chapter 13 cases?
A cosigned or guaranteed debt is a debt of the Debtor that has been cosigned or guaranteed by another person. If a cosigned or guaranteed consumer debt is being paid in full under a chapter 13 plan, the creditor may not collect the debt from the cosigner or guarantor. However, if a consumer debt is not being paid in full under the plan, the creditor may collect the unpaid portion of the Debtor from the cosigner or guarantor. A consumer debt is a non-business debt. Creditors may collect business debts from cosigners or guarantors even if the debt is to be paid in full under the Debtor's plan.
20.May a husband and wife file a joint Chapter 13 case?
A husband and wife may file a joint chapter 13 case if each of them meets the requirements listed in the answer to Question 19 above, except that only one of them need have regular income and their combined debts must meet the debt limitations described in the answer to Question 19 above.
22.May a self-employed person file a chapter 13 case?
Yes. A self-employed person meeting the eligibility requirements listed in the answer to question 19 above may file a chapter 13 case. A Debtor engaged in business may continue to operate the business during his or her chapter 13 case.
24.Where is a chapter 13 case filed?
A chapter 13 case is filed in the office of the clerk of the Bankruptcy Court in the district where the Debtor has lived or maintained a principal place of business for the greater portion of the last 180 days. The bankruptcy Court is a federal Court and is a unit of the United States District Court.
26.How does the filing of a chapter 13 case affect collection proceeding and foreclosures that are filed against the Debtor?
The filing of a chapter 13 case automatically stays (stops) all lawsuits, attachments, garnishments, foreclosures and other actions by creditors against the Debtor or the Debtor's property. This stay is called the automatic stay. A few days after the case is filed, the Court will mail a notice to all the creditors advising them of the automatic stay. Certain creditors may be notified sooner, if necessary. Most creditors are prohibited from proceeding against the Debtor during the entire course of the chapter 13 case. If the Debtor is granted a chapter 13 discharge, the creditors will then be prohibited from collecting the discharged debts from the Debtor after the case is closed. If the Debtor has had a prior bankruptcy case dismissed within the past year, he or she may be denied protection of the automatic stay.
29.Is a person's employer notified when he or she files a chapter 13 case?
In most cases, yes. Many Courts require a Debtor's employer to make payments to the chapter 13 trustee on the Debtor's behalf. Also, the chapter 13 trustee may contact an employer to verify the Debtor's income. However, if there are compelling reasons for not informing an employer in a particular case, it may be possible to make other arrangements for the required information and payments.
31.May employers or government agencies discriminate against persons who file chapter 13 cases?
No. it is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed a chapter 13 case. It is also illegal for local, state, or federal government agencies to discriminate against a person as to the granting of licenses, permits, student loans, and similar grants because that person has filed a chapter 13 case.
33.What is a priority claim?
A priority claim is an unsecured claim that is given priority of payment under the Bankruptcy Code. It is a claim that must be paid before other unsecured claims are paid. Examples of priority claims are tax claims, wage claims, and claims for alimony, maintenance or support. Claims for administrative fees, such as the chapter 13 trustee's fee, the filing fee, and the fee of the Debtor's attorney are also priority claims in chapter 13 cases.
35.What if the Court does not approve a Debtor's chapter 13 plan?
If the Court will not approve the plan initially proposed by a Debtor, the Debtor may modify the plan and seek Court approval of the modified plan. If the Court does not approve a plan, it will usually give its reasons for refusing to do so, and the plan may then be appropriately modified so as become acceptable to the Court. A Debtor who does not wish to modify a proposed plan may either convert the case to a chapter 7 case or dismiss the case.
38.What if the Debtor decides to discontinue the chapter 13 case?
The Debtor has the right to either dismiss a chapter 13 case or convert it to a chapter 7 case at any time for any reason. However, if the Debtor simply stops making the required chapter 13 payments, the Court may compel the Debtor or the Debtor's employer to make the payments and to comply with the orders of the Court. Therefore, a Debtor who wishes to discontinue a chapter 13 case should do so through his or her attorney.