Chapter
13 Basics
1. What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is a debt repayment proceeding. The debtor turns over a
specified portion of his/her future earnings to the Chapter 13 trustee, who then
distributes dividends to creditors who have filed bona fide claims. The method of
determining the dividend distribution is determined by the Chapter 13 Plan which is filed
with the Bankruptcy Court by the Debtor. The debtor receives a discharge of all
dischargeable debts.
2. Who determines how much my Chapter 13 payments will be?
The amount of your Chapter 13 payments are based upon your income, your
monthly living expenses, and the amount of your total debts. The Court will allow you to
keep and spend so much of your income as is necessary to maintain a reasonable standard of
living. Only your disposable income over and above normal and reasonable living expenses
will be used to repay debt.
3. Will I be able to
keep all of my property?
YES , if you want to. By filing a Chapter 13 Plan, you arrange for the
repayment of your debts and for the repayment of liens on your property. Sometimes, a
debtor may want to surrender a particular asset in order to get rid of a debt, or,
sometimes, get rid of a car, TV or appliance which does not work anyway by giving it back
to a creditor in full or partial satisfaction of a debt..
4. Who can file a Chapter 13
Bankruptcy?
You must reside or have a domicile, a place of business, or property in the United States
or a municipality. You must not have had a bankruptcy filing dismissed for cause within
the last 180 days. You must have a regular income. Your debts cannot exceed $750,000 in
secured debt or $250,000 in unsecured debt.
5. How long will a Chapter 13
Plan last?
Chapter 13 Plans are for up to 36 months long [or sixty (60) months where the debtor is
making his best effores]. After that time, the Debtor is discharged [forgiven] for his
debts.
6. What
are the most common causes of Chapter 13 Bankruptcy?
The most common reasons for consumer bankruptcy are (a) loss of a job or long-term
layoffs; (b) loss of overtime hours; (c) lengthy illnesses and large medical expenses; (d)
death or disability of a spouse; (e) separation, divorce and marital problems; (f)
seriously over extended credit; and (g) large unexpected expenses.
7. Can I stop the bill
collectors from calling?
One of the major benefits of filing for protection under Chapter 13 is that creditor
actions are stayed (stopped). This means that debt collection efforts and foreclosure is
halted immediately. Chapter 13 also protects codebtors or cosigners from collection
activity while you are making your Chapter 13 payments.
8. How long
after I file will the creditors stop calling?
Once a creditor or bill collector becomes aware that you have filed for bankruptcy
protection, he or she must stop all efforts to collect the debt. When your bankruptcy is
filed, the court will mail a notice to all of the creditors listed in your schedules. This
usually takes a week to ten days. You will receive a copy of the same notice which goes
out to creditors. If this is not soon enough to stop a garnishment or repossession, then
you should have your attorney inform the creditor immediately.
If a creditor continues to use collection tactics once informed of
the bankruptcy, they may be liable for court sanctions and attorney fees for this conduct.
9. I am
married; does my spouse also have to file bankruptcy?
No. In some cases where only one spouse has debts, or one spouse has debts that are not
dischargeable, then it might be advisable to have only one spouse file.
10. Will I Lose my job?
No. Bankruptcy laws prohibits discrimination based upon a debtor filing for protection
under the bankruptcy laws.
11. Can I go to jail if I
file bankruptcy?
ABSOLUTELY NOT. There are no debtors prisons in the United States. As a
matter of fact, the right of bankruptcy is governed by the U. S. Constitution in Article
I, Sec. 8, cl.4.
12. Will my employer
find out about my bankruptcy?
Under normal circumstances, unless your employer is a creditor, your employer will not
know that you have filed bankruptcy. However, there is a growing trend in Bankruptcy
Courts to require wage withholding to fund the Chapter 13 Plan. This means that your
employer may receive an order from the Bankruptcy Court to deduct your Chapter 13 payment
from your check and send it directly to the Chapter 13 trustee. Consult your attorney
about local procedure.
13. What
happens to my real property and other assets?
Once the Chapter 13 bankruptcy is filed, all the property of the debtor at the time of the
filing and certain other property to be received in the future, becomes the property of
the bankruptcy estate. This means that the bankruptcy trustee will take control of all
non-exempt property for purposes of satisfying the creditors. However, once the Chapter 13
Plan is confirmed [approved by the court], control over all of your property,
except for future wages, will be returned to you.
14. Can I keep my home
and personal property?
YES. One of the main reasons for filing a Chapter 13 bankruptcy is to
keep your home. Usually, if you are behind on your house payments, your Chapter 13 Plan
will provide that you begin making your current monthly payments and not get any further
behind. Any payments you are behind on will be paid to the mortgage company through the
Chapter 13 trustee.
15. Can I keep my car after
Bankruptcy?
YES. If your car is mortgaged to a creditor as security for a loan, you will be expected
to pay an amount to the creditor at least equal to the value of the automobile at the time
you file your Chapter 13 Plan. Any amount due to the creditor over the value of the car
will be paid as an unsecured debt..
16. Can I keep my
credit cards after bankruptcy?
Generally, NO. Under some circumstances you may be able to keep your credit cards. There
are many factors which must be considered. Some of those include the credit card balance
at the time of the bankruptcy, what the credit card company is willing to do and your
ability to pay the present and future credit card debt. Under Chapter 13, the Bankruptcy
Court must usually approve any new debt you make, which includes future credit card
charges.
17. Will Bankruptcy stop a
wage garnishment?
Yes.
18. Will Bankruptcy stop a
foreclosure?
Yes . A home is an asset usually secured by a mortgage. While a Chapter 13 will stop a
foreclosure, unless you begin making current payments, a creditor will be successful in
obtaining permission from the Court to institute a new foreclosure proceeding. Assuming
you can make your monthly payments after you file a Chapter 13 Plan, you can catch up your
arrearages under Chapter 13 and avoid foreclosure of your home.
19. Will Bankruptcy stop
an eviction action?
Unless you can begin making your future rent payments on time, Chapter 13 will only stop
an eviction for a while. Like a home mortgage payment, unless you can stay current from
the date of filing a Chapter 13 forward, the owner will be entitled to possession of his
property and at best you will be able to remain in the property until the owner can obtain
an order from the Bankruptcy Court granting relief from the automatic stay and begin
evicition proceedings in state court. If you can stay current, then you can catch up your
back rent through the Chapter 13 Plan.
20. Will Bankruptcy stop a
judgment?
Yes . Most civil judgments are stopped by bankruptcy.
21. Will a Bankruptcy remove a lien?
Under some circumstances once the bankruptcy proceedings have started, a special motion
can be filed to remove certain liens. It will take a bankruptcy court order to remove
them. This is a complicated area of the bankruptcy law and an attorney should be
consulted.
22. I am divorced. Will Bankruptcy wipe-out my obligation to pay joint debts?
In some cases, YES . In October of 1994, Congress amended the Bankruptcy Code to provide,
generally, that obligations arising out of a divorce or property settlement agreement are
non-dischargeable. If your Chapter 13 Plan provides for payment in full of these
obligations, then they will be discharged. However, if your Plan does not provide for
payment in full, these obligations will not be discharged at the end of your Chapter 13
Plan and you will still have to pay them outside of Bankruptcy Court. While you are in
Chapter 13, creditors will not be permitted to collect the joint debts either from you or
from your former spouse directly.
23. I am a co-signer for a debt. How does Bankruptcy affect my obligation?
If the debt is primarily your debt, the you must provide for payment under your Chapter 13
Plan. If the debt is primarily the debt of the person with whom you cosigned, then you may
either provide for payment by you of the debt under your Chapter 13 Plan, or you may
provide that the debt will be paid by the codebtor. While you are in Chapter 13, the
codebtor is protected against collection efforts outside the Bankruptcy Court..
24. Who notifies the creditor and bill collection?
After your bankruptcy is filed, the Bankruptcy Court mails a notice to all the creditors
listed in your schedules. This usually takes a week to ten days. If this is not soon
enough, then you should have your attorney inform the creditors immediately.
25. Do I have to fill out forms?
YES. You will receive a detailed questionnaire from my office to be completed. It is
important that you complete all of the questions, even though many of them may not apply
to you or to your situation.
You will be required to list ALL of you property and ALL of your
debts. At the initial court appearance, you will be asked under oath whether you have
listed all of your property and all of your debts and you must be able to truthfully
answer that you have.
Your attorney will ask you to complete a questionnaire and then will
take that questionnaire and complete the bankruptcy petition and schedules based on the
information which you have provided. There could be between 30 and 60 pages in your
petition, schedule and other papers filed at the time of your bankruptcy. You must follow
the local and federal bankruptcy court rules in completing the forms. Preparing these
forms requires an understanding of both bankruptcy law and local state law in order to
enter the information correctly and accurately. The forms have to be typed and a certain
number of copies must be included with the filing.
After your attorney has prepared the bankruptcy petition, you or you
and your spouse (if filing jointly) will review them and, if they are correct,
sign them. Your attorney will forward them to the Court along with the necessary filing
fees.
26. Do I have to go to court?
Yes. Within about 30 to 45 days after you file the bankruptcy, you will have to attend a
hearing presided over by the Trustee or by the Bankruptcy Administrator. This hearing is
called the First Meeting of Creditors or Section 341 Meeting. At this hearing, the Trustee
or the Bankruptcy Administrator and the trustee will ask questions to you under oath
regarding the content of your bankruptcy papers, assets, debts and other matters. After
the trustee is done, your creditors will have an opportunity to ask questions to you
regarding the location and condition of your property, hazard insurance coverage and
matters related to your financial affairs.
Don't worry, your attorney will be there to represent you and your
attorney will help you prepare for the hearing. Sometimes, after your hearing is over,
your creditors will approach you through your attorney to discuss the status of secured
property or your desire to retain a credit card. Your attorney will negotiate with them,
with your knowledge and approval.
After this hearing you will normally not need to return to court
unless a creditor files a motion or an adversary action. This is the exception and only
your attorney can determine if this is likely to happen. Generally, debtors will only need
to appear in the Bankruptcy Court only once.
27. What happens after I file
my Bankruptcy?
Once you file for Chapter 13 protection, the Bankruptcy Court will issue an order
requiring that you make the payments to the Chapter 13 Trustee which you proposed in your
Plan. The Court will also set a date for you Section 341 meeting of creditors and for
hearing on confirmation [approval] of your Plan. Sometimes the 341 meeting and
confirmation hearing are combined into one hearing. Once your Plan is confirmed, you will
be required to make the payments which you proposed to the Chapter 13 Trustee and, if
appropriate, keep you home mortgage [or your rent] from getting any further behind. Once
you have completed all of your payments, the Court will issue a discharge to you which
will relieve you from any further obligation on the debts which were covered by your Plan.
28. Who deals with the creditors and bill collectors during the bankruptcy?
Your attorney and the Chapter 13 Trustee deal with your creditors for you. You should
refer all creditors and bill collectors either to you attorney or to the Chapter 13
Trustee.
29. What
if I forget to list a creditor on my bankruptcy papers?
You can file an amendment to your schedules up to a certain time before discharge. If the
amendment is timely filed then the omitted creditor is added to the bankruptcy. It is
perjury to intentionally omit a creditor. However, if you do not know that a creditor
exists and there are no assets for your creditors, the debt will be discharged.
30. What happens
to my credit rating after Bankruptcy?
The bankruptcy is a judgment and may be listed in credit reports for a period of up to 10
years. However, by the time most debtors have filed bankruptcy, their credit rating is
already damaged by late payments, repossessions, law suits, foreclosures and other debt
problems which will also be reported for a period of up to 10 years.
31. After Bankruptcy, can I get
credit?
Surprisingly to most folks -- YES . This is up to each particular credit grantor. In my
experience, it is possible to get credit if the credit grantor believes and understands
your reasons for filing the bankruptcy. Also, creditors realize that after you receive a
discharge in bankruptcy, you are virtually debt free with the same income and with the
same assets as before you filed bankruptcy.
32. How do I
re-establish my credit after Bankruptcy?
There are at least two ways to get credit after a bankruptcy. First, one of your existing
creditors may continue to grant you credit based upon your past dealings with them.
Second, today there are several banks offering secured credit cards. This means that the
credit limit is based upon the amount of security [cash] given to the card issuer.
There are people who "specialize" in the business of credit repair. BEWARE .
Some of the schemes they offer to you are not only worthless, they may be illegal. Consult
your attorney first. You will almost certainly receive at least one solicitation from one
of these "professionals".
33. Is there any thing I should not do if I am contemplating bankruptcy?
There are several areas related to this question. You should consult your attorney. In
particular there are three items worth mentioning.
a. Under bankruptcy law, certain luxury purchases over $1,000 within
60 days of the bankruptcy filing are presumed nondischargeable.
b. Under bankruptcy law, cash advances aggregating $1,000 within 60
days of the bankruptcy filing are presumed nondischargeable.
c. Debts involving materially false financial statements are
nondischargeable under certain circumstances.
34. If I
need to file Bankruptcy again, how long do I have to wait?
If you have completed your Chapter 13 Plan, and paid at least 70% of your unsecured debt,
there is no waiting period. If your bankruptcy was dismissed, you must usually wait for
180 days to refile. You may file a Chapter 13 at any time if your new Plan proposes to
repay 100% of your debts.
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