Chapter 13 Bankruptcy assistance in Maryland

CHAPTER 13 BASICS

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.

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.

Will I be able to keep all of my property?

Generally, the answer is "Yes" although there situations in which it might not be feasible for some people. For instance, if you have too much equity in your home, car or other assets, in excess of the amount you are allowed to exempt, you must buy out that equity in a Ch. 13 to the extent necessary to pay your creditors. If you cannot afford the necessary Plan payment amount to do so, you may have to give up the asset. There are many planning nuances in bankruptcy and an experienced bankruptcy attorney can review your circumstances and determine how best to proceed.

Who can file a Chapter 13 Bankruptcy?

One must be a Maryland resident to file for bankruptcy relief in Maryland. As a general rule, one cannot file another CH. 7 case if one has received a discharge with 8 years form the date the prior case was filed. One is not entitled to file for another CH. 13 discharge within 4 years of receiving a CH. 13 discharge. However, one can file another CH. 13 case at any time in order to obtain some breathing room to get caught up even if one is not eligible for another discharge of one's debt. Generally one can refile a Ch. 7 or a CH. 13 case immediately if one's case is dismissed, but may have to wait 180 days if the dismissal was due to failure to respond to a court order or in the case of repeat filings after a creditor has filed a motion for relief of stay to pursue a foreclosure after a post-petition default. Rather than make an assumption and be wrong, one should consult with an attorney promptly to review one's options in such circumstances. Sometimes, it is possible to have one's case re-opened. The current unsecured debt limit is $336,900 and the secured debt limit is $1,010,650. There are no limits in Chapter 7 or Chapter 11.

How long will a Chapter 13 Plan last?

One's Commitment Period may be to make Plan payments over either 36 or 60 months depending on whether one's income is above or below the median income for the size household in the area in which one lives based upon IRS guidelines. Within this range, it may be possible to make adjustments in certain circumstances. It is possible to pay off one's Plan early. If the court confirms a Plan that provides for payment of less than 100% of the amount due to the unsecured creditors, the unpaid balance is discharged (wiped out) after completion of the Plan.

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.

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 co-debtors or cosigners from collection activity while you are making your Chapter 13 payments.

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.

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.

Will I Lose my job?

No. Bankruptcy laws prohibits discrimination based upon a debtor filing for protection under the bankruptcy laws.

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.

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.

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.

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.

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.

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.

Will Bankruptcy stop a wage garnishment?

Yes.

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.

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 eviction proceedings in state court. If you can stay current, then you can catch up your back rent through the Chapter 13 Plan.

Will Bankruptcy stop a judgment?

Yes. Most civil judgments are stopped by bankruptcy.

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.

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.

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 co-debtor. While you are in Chapter 13, the co-debtor is protected against collection efforts outside the Bankruptcy Court.

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.

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.

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.

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.

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.

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.

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.

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.

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".

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.

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 re-file. You may file a Chapter 13 at any time if your new Plan proposes to repay 100% of your debts.