Chapter 13 bankruptcy repayment plan

To begin a Chapter 13 bankruptcy, you will need to fill out a packet of bankruptcy forms – mostly the same forms as you would use in a Chapter 7 bankruptcy. they include listing your income, expenses, property and debts. You will need to file these forms and paperwork with a nearby bankruptcy court. You must also file a workable payment plan proposing how you plan on handling your debts over the payment plan period. You must also file your tax return for the previous year which is proof that you’ve filed your tax returns for the last four years, and a certificate showing that you’ve completed credit counseling with an agency approved by the United States Trustee.

Chapter 13 plan

Chapter 13 plan

Under a Chapter 13 plan, you usually make monthly payments to the bankruptcy trustee, an official appointed by the bankruptcy court to oversee your case. The trustee in turn pays your creditors and collects a commission based on the amounts paid out under your plan. You must make all of your payments to successfully complete your plan and get a discharge of your remaining debts.

Amount you’ll have to pay

Some creditors are entitled to receive 100% of what you owe them, while others may receive a much smaller percentage or even nothing at all. Usually, must provide for:

Administrative claims will be paid 100%, which includes:

1. your filing fee

2. the trustee’s commission (3% to 10% of each monthly payment)

3. attorney’s fees, if you hire a bankruptcy lawyer for help with your Chapter 13 bankruptcy

Priority debts will be paid 100% which includes:

 back alimony and child support

back alimony and child support

1. back alimony and child support

2. wages, salaries or commissions you owe to employees

3. most tax debts (including state and federal income taxes)

4. contributions you owe to an employee benefit fund

Mortgage defaults will be paid 100%

if you want to keep your house

Other secured debt defaults will be paid 100%

if you want to keep the property. Missed car payments fall into this category.

Unsecured debts

They will be paid anywhere from 0% to 100% of what you owe. The exact amount depends on:

1. the total value of your nonexempt property

2. the amount of disposable income you have each month to put towards your debts

3. how long your plan lasts

Disposable Income

In your payment plan, you must commit to paying any leftover disposable income (your income less certain allowed expenses and payments on secured loans, such as a mortgage or car loan) towards your unsecured debts, such as credit card debts and medical bills.

Length of payment plan

Length of payment plan

Length of payment plan

The length of your payment plan depends on your income level. If your “current monthly income” (meaning your average income over the six months prior to filing) exceeds the median monthly income for a household of your size in your state, your plan must last five years. You can propose a three-year plan, even if your unsecured creditors cannot be fully repaid during that time, as long as your income is less than the median.

Your current monthly income could be out of date. That’s because your current monthly income is an average, it may well be more than your actual monthly income at the time you file. For example, if you were laid off unexpectedly three months before filing, your monthly income when you file may be quite low, compared to your average income over the last six months which would have to include three months of your salary.

The confirmation hearing

The bankruptcy judge must hold a confirmation hearing no later than 45 days after the meeting of creditors and decide whether the plan is feasible and meets the standards for confirmation set forth in the Bankruptcy Code. After receiving 25 days notice of the hearing the creditors may object to confirmation. While a variety of objections can be made, the most frequent ones are that payments offered under the plan are less than what the creditors would receive if the debtor’s assets were liquidated or that the debtor’s plan doesn’t commit all of the debtor’s projected disposable income for the three or five year applicable commitment period.

If the court confirms the plan, the Chapter 13 trustee will distribute funds received under the plan “as soon as it is practicable.” If the court declines confirmation of the plan, the debtor may file a modified plan. The debtor can also convert the case to a liquidation case under Chapter 7 (a fee of $15 is charged for converting a case under Chapter 13 bankruptcy to a case under Chapter 7 bankruptcy). If the court declines to confirm the plan or the modified plan and instead decides to dismiss the case, the court may authorize the trustee to keep some funds for costs. However, the trustee must return all remaining funds to the debtor.

On some occasions, a change in circumstances may compromise the debtor’s ability to make plan payments. For instance, a creditor may object or threaten to object to a plan, or the debtor may inadvertently failed to list all creditors. In such cases, the plan may be modified either before or after confirmation. Modification after confirmation is not limited to an initiative by the debtor, but may be at the request of the trustee or an unsecured creditor.

Administrative fees and interest charges

Administrative fees & interest charges

Administrative fees & interest charges

Chapter 13 trustees get paid by taking a percentage of all amounts they distribute to creditors through your repayment plan. This percentage varies depending on where you live but can be up to about 10%. In addition, you typically have to pay interest on secured claims you are paying off through your plan. The required interest rate can vary depending on the type of claim and the rules in your jurisdiction. However in general, you can expect to pay the national prime rate plus 1% to 3%.

Making regular monthly payments on loans

Keep in mind that if you want to keep your home, car or other secured debts, you’ll have to keep making your regular monthly payments during your plan period (unless the court requires you to pay off the entire balance through your plan). Some courts might require you to make these monthly payments through your plan.

No surrender of property

If you file for Chapter 13 bankruptcy, you don’t need to hand over any of your property. Instead, you repay your debts out of your income. In exchange for getting to keep your property, your plan will have to pay your creditors at least the value of your non-exempt property. In Chapter 7 bankruptcy, you must surrender your non-exempt property to the trustee who can sell it and distribute the proceeds to your creditors. You do get to keep property that is exempt.

If you need help, consult a bankruptcy lawyer

Proposing and calculating a feasible Chapter 13 repayment plan is a complicated process. To obtain more specific plan payment information, talk to a knowledgeable bankruptcy attorney familiar with the rules in your particular jurisdiction.

Chapter 13 bankruptcy rules

Filing for Chapter 13 bankruptcy can provide you with a structured plan for paying down your debt and stop creditor harassment, runaway interest rates and fees. It’s sometimes referred to as a “re-organization” bankruptcy because it re-organizes your debts so that you can afford to pay them.

Unlike a Chapter 7 bankruptcy,  Chapter 13 bankruptcy doesn’t completely discharge your debts, but rather provides you with the structure to pay them off using your income. People who might benefit from Chapter 13 bankruptcy have regular income, but are not able to afford their debt payments and living expenses. Normally, under a Chapter 13 bankruptcy, a three to five year payment plan is established. Once all payments under the plan have been made, any remaining debt is eliminated.

One important benefit of Chapter 13 over Chapter 7 bankruptcy is that you are not forced to sell your assets. This is because debts are paid off with current income as opposed to proceeds from the sale of your assets.

Chapter 13 bankruptcy rules – Filing requirements

Filing requirements

Filing requirements

In your petition for bankruptcy, you’ll need to provide a list of all of your debts (whether you are behind on paying them or not) as well as details about your assets, income and living expenses. You will also need to create and file a plan for paying off your debts over a specified period of time. You must have regular income and also document that income over the past several years to support your ability to make debt payments.

While there are no limits to how much debt you can have to file for Chapter 7 bankruptcy, there are limits for Chapter 13 bankruptcy for both secured and unsecured debt. These limits increase each year due to inflation, so you have to research the current levels before filing your application. They are put into place to make it more likely that you can pay off debt via a payment plan rather than let you off the hook for significant amounts of debt.

Also, you must complete a course on financial counseling to help you prepare for your bankruptcy petition and to discuss bankruptcy alternatives. Counseling also tries to help you understand what behavior created your difficult situation in the first place, and how to modify your behavior in the future.

Payment plan

Payment plan

Payment plan

Your payment plan must accomplish at least one of the following:

1. Pay off all your debts within the appropriate time frame

2. Commit all your disposable income within the time frame to paying off debts

3. Be accepted by your creditors if the plan doesn’t meet either one of the above conditions

Adding to that, your payment plan must pay down at least the same amount or more of your debt than if you had filed a Chapter 7 bankruptcy and had to sell your assets. If you have a lot of assets but low income, you may not be able to accomplish this. In other words, even if you file for Chapter 13 you may be forced to sell some assets.


Depending on your income, you will either have three or five years to complete your payment plan. Generally, you will be subject to the payment plan for only three years if you have less than the median income for your area (i.e. have passed the “means test”) or five years if you did not pass the “means test.” Either way, you are required to put all your disposable income, as defined below, towards the payment plan.

The payment plan will also make provisions for you to continue full monthly payments on secured debt, such as a mortgage or a car loan, during and after the payment plan is complete if the payment term on those debts extends that long. However, whatever unsecured debt is left after the payment plan is complete will be forgiven.

Priority debts

Priority debts

Priority debts

Your payment plan must prioritize certain debts to pay them in full during its course. These are referred to as “priority debts” and include:

1. Bankruptcy filing fees paid to the bankruptcy court, if you haven’t paid them in full when filing.

2. Attorney’s fees for filing bankruptcy.

3. Back alimony and child support debts.

4. Any back payments due on your mortgage, auto loan or other secured debt and any fees or penalties that resulted from missing payments. These are considered priority only if you wish to keep the house, car or other secured debt the collateral is attached to.

5. Most tax debts although some old income tax debts can be forgiven.

Reaffirmed debts are also paid in full each month under the payment plan. However, they don’t have to be paid off in full by the end of the payment plan as long as the reaffirmed debt’s payment schedule is kept.

Disposable income

Disposable income

Disposable income

Disposable income, as defined by federal bankruptcy laws, refers to the income left over after paying several expenses in full each month. These expenses include:

1. Living expenses, including food, rent or mortgage, transportation, utilities, medical bills and any current alimony or child support bills.

2. Current payments for secured debts, such as your car or home, that you would like to keep.

To determine your disposable income, subtract your living expenses and secured debt payments from your monthly income. After that, subtract your monthly payments for priority debts which you will need to spread out across the three or five years required for your plan. The amount left over is your monthly disposable income and will be the amount on which the trustee’s commission is calculated.

Your bankruptcy trustee should be able to provide their current commission level (normally between 3% and 11%). Divide whatever is left after taking out the trustee’s commission among your other debts, proportional to their size. While you are expected to pay down as much as you can, it is also expected that you won’t be able to pay down all of your debts.

Any non-priority debt amounts left over after your plan concludes will be discharged or wiped out.

Unlike Chapter 7 bankruptcy, a Chapter 13 bankruptcy allows you to pay debt using current income instead of liquidating your assets. Creditors, however, can object to a payment plan if your assets are sufficient to pay off your debt and you claim little disposable income. That is, if you have a lot of assets but little income. This means your payment plan will repay just a fraction of your debt and creditors may ask the court to force you to sell some of your assets as well.

Treatment of property with loans

Unless a modification to the loan is approved by the creditor, loans secured by property must be paid in full each month  to keep it. If the monthly payments for a secured debt are not paid in full during the course of the payment plan or there are still missed payments that were not made up after the payment plan has been completed, the creditor has the right to seize the property or foreclose on it. Missed payments are considered a priority debt with regards to your payment plan and must be paid back to successfully complete the plan.

One thing to keep in mind is that while payments must be made, the loan does not need to be paid in full by the end of the payment plan if the loan term is longer than the payment plan, such as with a home mortgage.

Automatic stay

Automatic stay

Automatic stay

If you’re considering bankruptcy, you’ve probably received a lot of unwanted attention from your creditors and foreclosure proceedings may have already begun on your home. Once you file for bankruptcy, an “automatic stay” measure is activated which requires all creditors to immediately stop their collection attempts until the court determines how to proceed.

Creditors, however,  can appeal to proceed with a foreclosure in some cases, such as if one was already in progress. However, they must do so with the permission of the bankruptcy court.


Chapter 13 bankruptcy is an opportunity for those with a regular income to pay down their debts over a few years at low or no interest rates while keeping their assets. However, since almost every cent that is not used for living expenses will be directed towards debt payment, it is by no means an easy way to get out of debt and will have long-standing repercussions on your credit. If you are considering bankruptcy,  you should explore all your options and understand the effects bankruptcy will have on your quality of life during and after the process.

Chapter 13 bankruptcy eligibility

Filing bankruptcy should be considered only as a last resort by a person with financial troubles. For many debtors, Chapter 13 bankruptcy is a good option. However, not everyone is eligible for it. Let’s look at what Chapter 13 is, how to file bankruptcy and the requirements for Chapter 13 bankruptcy eligibility.

What is Chapter 13 bankruptcy

Under this chapter, debtors propose a repayment plan

Under this chapter, debtors propose a repayment plan

Chapter 13 bankruptcy is also called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period. If the debtor’s current monthly income is greater than the applicable state median, the plan must generally be for five years. In no case may a plan provide for payments over a period longer than five years. During this time the law forbids creditors from starting or continuing collection efforts.

Chapter 13 bankruptcy eligibility

In order to file for Chapter 13 bankruptcy, every debtor must meet the requirements under this Chapter. With Chapter 13, unlike Chapter 7 bankruptcy which allows the debtor to discharge some debts in exchange for the sale of a non-exempt property to pay creditors, Chapter 13 allows the debtor to keep their property and repay creditors in a three or five year court-approved repayment plan.

According to Chapter 13 bankruptcy eligibility requirements under the bankruptcy code, a debtor must meet the following criteria to qualify:

You are not a business entity

Only individuals & those filing jointly file for Chapter 13 bankruptcy

Only individuals & those filing jointly file for Chapter 13 bankruptcy

A business, even a sole proprietorship, cannot file for Chapter 13 bankruptcy in the name of that business. Businesses are steered toward Chapter 11 bankruptcy when they need help re-organizing their debts.

Only individuals and those filing jointly as husband and wife can file for Chapter 13 bankruptcy. A business owner may not file in the name of the business, if, however, ownership is as a sole proprietor or with a partner, the debtor can file in their name for the debts they are personally liable for. However, stockbrokers and commodity brokers are not eligible for Chapter 13.

You are not barred by a prior bankruptcy

If a debtor had discharged any debt in a Chapter 13 bankruptcy within the last two years or in a Chapter 7 bankruptcy within the last four years, he is not eligible for a Chapter 13 discharge until the required time has elapsed.

A previous bankruptcy case wasn’t dismissed within the previous 180 days

A debtor cannot file for Chapter 13 or Chapter 7 if a prior bankruptcy petition was dismissed during the preceding 180 days for either of the following reasons:

1. The debtor wilfully violated a court order or failed to appear before the court; or

2. The debtor requested that the court dismisses the case after a creditor asked the court to lift an automatic stay.

You have fulfilled the credit counseling requirement

A Chapter 13 debtor must file with the bankruptcy court a certificate of proof establishing that an approved credit counseling agency provided debt counseling in at least 180 days prior to filing for Chapter 13. If the credit counseling agency created a debt management plan, it must provide a copy of it to the court. The debtor must file the certificate with the initial paperwork or must provide it within 15 days after filing for bankruptcy.

Your debts aren’t too high

Your debts aren’t too high

Your debts aren’t too high

Chapter 13 requirements impose a limit on the amount of a filer’s debt. Chapter 13 is available to debtors with less than $336,900 in unsecured debt (these are debts, not secured by property, such as credit card debt and medical bills) and less than $1,010,650 in secured debt (in which a creditor can take the property securing the debt if it’s not paid). Debt limits are adjusted for inflation every three years.

You have filed your income tax returns

To meet Chapter 13 requirements, a debtor must provide proof of filing state and federal income tax returns for the previous four years. The debtor must provide the trustee with a copy or a transcript of the most recent federal tax return filed with the IRS at least seven days before the first meeting of creditors.

The plan you proposed repays all required debts

Under Chapter 13, bankruptcy law requires the repayment of some debts in full. Debts in this category include:

Priority debts

Unsecured debts, such as child support, alimony or support payments and non-dischargeable taxes.

Secured debts that survive the repayment plan

Secured debts such as a mortgage or a vehicle loan must remain current during the repayment plan.

Other secured debts

Secured debts like judicial and tax liens must be paid in full during the repayment time.

You can repay a certain amount to unsecured creditors

You can repay a certain amount to unsecured creditors

You can repay a certain amount to unsecured creditors

Non-priority, unsecured creditors may also be entitled to repayment. Because a debtor may keep non-exempt property under Chapter 13 bankruptcy, a debtor must repay non-priority, unsecured creditors at least the amount equal in value to their non-exempt property over the life of the repayment plan. Non-exempt property usually includes household appliances and furniture, inexpensive jewelry and a certain amount of equity in a home or a motor vehicle.

You have sufficient income to repay debt

After deducting allowable expenses, a debtor must have enough income for all debt obligations. A debtor may include income from a working spouse even if the spouse has not filed jointly for bankruptcy, self-employment income, wages and salary, Social Security benefits and unemployment benefits. To qualify for Chapter 13, the debtor must have enough income for expenses for mandatory payments to priority and unsecured creditors, and for payments to unsecured creditors in an amount at least equal in value to the debtor’s non-exempt property. Based on a percentage of all payments made in the plan, the debtor must pay the trustee a commission.

Chapter 7 vs Chapter 13 bankruptcy

In general, most debtors prefer to file for Chapter 7 because it eliminates most unsecured debt and is easier. However, not every debtor qualifies for Chapter 7. In some cases, repaying debt over time in a court-approved Chapter 13 repayment plan provides benefits that are unavailable in Chapter 7. Sometimes things can get quite complicated, so it is important to seek help in the face of a bankruptcy attorney. First, let’s understand the main differences between Chapter 7 and Chapter 13. We’ll look at the advantages and disadvantages of both and help you determine which one suits your case better.

Chapter 7 vs Chapter 13 bankruptcy

Chapter 7 vs Chapter 13 bankruptcy

Chapter 7 vs Chapter 13

What is Chapter 7 bankruptcy

Chapter 7 is a liquidation bankruptcy designed to wipe out your general unsecured debts such as credit cards and medical bills. To qualify for Chapter 7 bankruptcy, you must have little or no disposable income. If you make too much money, you may be required to file a Chapter 13 bankruptcy instead.

When you file for Chapter 7 bankruptcy, a trustee will be appointed to administer your case. In addition to reviewing your bankruptcy papers and supporting documents, the Chapter 7 trustee’s job is to sell your non-exempt property to pay back your creditors. If you don’t have any non-exempt assets, your creditors will receive nothing. As a result, Chapter 7 bankruptcy is typically for low income debtors with little or no assets who want to get rid of their unsecured debts.

What is Chapter 13 bankruptcy

Chapter 13 is a re-organization bankruptcy designed for debtors with regular income who can pay back at least some portion of their debts through a repayment plan. If you make too much money to qualify for Chapter 7 bankruptcy, you may be left with no choice but to file a Chapter 13 case. Many debtors, however, choose to file for Chapter 13 bankruptcy because it offers many benefits that Chapter 7 bankruptcy does not (such as the ability to catch up on missed mortgage payments or strip wholly unsecured junior liens from your house).

In Chapter 13 bankruptcy, you get to keep all your property (including non-exempt assets). In exchange, you pay back all or a portion of your debts through a repayment plan (the amount you must pay back depends on your income, expenses and types of debt). For this reason, Chapter 13 is frequently referred to as a re-organization bankruptcy. Usually, Chapter 13 bankruptcy is for debtors who can afford to make monthly payments for missed mortgage or car payments or pay off non-dischargeable debts such as alimony or child support arrears.

Chapter 7 advantages

Chapter 7 advantages

Chapter 7 advantages

1. Unpaid balances due after assets are distributed are erased (“discharged” in bankruptcy language).

2. The amount of debt you can erase is not limited.

3. Wages you earn and property you acquire (except for inheritances) after the bankruptcy filing date are yours.

4. Your case is often over in about 3-6 months, enabling you to get rid of the burden of debt quicker.

5. There is no minimum amount of debt required.

Chapter 13 advantages

1. You keep all your property, whether they are exempt or non-exempt.

2. The debts not canceled in a Chapter 7 discharge can be reduced in a Chapter 13 payment.

3. You have a longer period of time to pay the debt.

4. You have protection against creditor’s collection efforts and wage garnishment.

5. You have protection against foreclosure by your lender of your home.

6. Any co-signers are immune from the creditor’s efforts as long as the Chapter 13 plan provides for full payment.

7. You can file repeatedly.

8. You can file a Chapter 13 after your Chapter 7 discharge to pay off any remaining liens.

9. You can separate your creditors by class. Different classes of creditors receive different percentages of payment. This enables you to treat debts where there is a co-debtor involved on a different basis from debts incurred on your own.

Chapter 7 disadvantages

Chapter 7 disadvantages

Chapter 7 disadvantages

1. You lose your non-exempt property which is sold by the trustee.

2. If facing foreclosure on your home, lender’s efforts are only temporarily stalled by filing.

3. Some debts survive and can be collected after your case is closed (e.g., mortgage liens).

4. Co-signors of a loan can be stuck with your debt unless they file for similar protection.

5. Bankruptcy damages your credit rating.

6. You can file this type of bankruptcy only once every eight years.

7. It is difficult to withdraw a Chapter 7 filing.

Chapter 13 disadvantages

1. You pay your debts out of your disposable (post-bankruptcy) income. This ties up your cash over the repayment period.

2. Legal fees are higher since a Chapter 13 filing is more complex.

3. Some debts will survive after your bankruptcy case is closed and you must continue paying.

4. Your debt must be under $1,532,700 (e.g., unsecured debts are less than $383,175 and secured debts less than $1,149,525).  These amounts are adjusted every three years.

5. Stockbrokers and commodity brokers cannot file a Chapter 13 bankruptcy petition.

6. Your debt can linger for years, burdening future income.

Chapter 13 bankruptcy – all you need to know

This chapter of the Bankruptcy Code provides for adjustment of debts for an individual with regular income. Chapter 13 allows a debtor to keep his property and pay debts over time, usually  in between three and five years.  Let’s look at Chapter 13 bankruptcy definition and explore what it can offer.

What is bankruptcy (chapter 13)

A chapter 13 bankruptcy, also called a wage earner’s plan, enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors in over three to five years. If the debtor’s current monthly income is less than the applicable state median, it will be a three-year plan unless the court approves a longer period “for cause.” If the debtor’s current monthly income is greater than the applicable state median, the plan must be for five years generally. In no case may a plan provide for payments over a period longer than five years. During this time, the law forbids creditors from starting or continuing collection efforts.

Advantages of Chapter 13 bankruptcy

Advantages of Chapter 13 bankruptcy

Advantages of Chapter 13 bankruptcy

Chapter 13 offers individuals a number of advantages over liquidation under Chapter 7.

The most significant is perhaps the opportunity Chapter 13 offers individuals to save their homes from foreclosure. By filing under this chapter, individuals can stop foreclosure proceedings and may cure delinquent mortgage payments over time. Nevertheless, they still must make all mortgage payments that are due during the Chapter 13 plan on time.

Another advantage of Chapter 13 bankruptcy is that it allows individuals to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the Chapter 13 bankruptcy plan.  By doing this, you may lower the payments. Chapter 13 also has a special provision that protects third parties who are liable with the debtor on “consumer debts.” This provision may protect co-signers. Lastly, Chapter 13 acts like a consolidation loan under which the individual makes the plan payments to a Chapter 13 trustee who then distributes payments to creditors. Individuals will have no direct contact with creditors while under Chapter 13 protection.

Chapter 13 eligibility

Any individual, including self-employed or operating an unincorporated business, is eligible for Chapter 13 relief as long as the individual’s unsecured debts are less than $383,175 and secured debts are less than $1,149,525. These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation or partnership may not be a Chapter 13 bankruptcy debtor.

An individual cannot file under Chapter 13 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor’s wilful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. In addition to that, no individual may be a debtor under Chapter 13 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. However, there are exceptions in emergency situations or where the U.S. trustee (or bankruptcy administrator) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during the required credit counseling, it must be filed with the court.

How it works

How it works

How it works

A Chapter 13 bankruptcy case begins with filing a petition with the bankruptcy court serving the area where the debtor has a domicile or residence. Unless the court orders otherwise, the debtor must also file with the court the following:

1. schedules of assets and liabilities

2. a schedule of current income and expenditures

3. a schedule of executory contracts and unexpired leases

4. a statement of financial affairs

The debtor must also file a certificate of credit counseling, a copy of any debt repayment plan developed through credit counseling, evidence of payment from employers (if any) received 60 days before filing, a statement of monthly net income and any anticipated increase in income or expenses after filing, plus a record of any interest the debtor has in federal or state qualified education or tuition accounts. The debtor must provide the Chapter 13 case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case began). A husband and wife may file a joint or individual petitions.

The courts must charge a $235 case filing fee and a $75 miscellaneous administrative fee. Usually, the fees must be paid to the clerk of the court upon filing. However,  with the court’s permission, they may be paid in installments. The number of installments is limited to four, and the debtor must make the final installment no later than 120 days after filing the petition.

For cause shown, the court may extend the time of any installment as long as the last installment is paid no later than 180 days after filing the petition. The debtor may also pay the $75 administrative fee in installments. Only one filing fee and one administrative fee are charged If a joint petition is filed. Debtors should be aware that failure to pay these fees may result in case dismissal.
To complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs and schedules, the debtor must compile the following information:

1. A list of all creditors and the amounts and nature of their claims

2. The source, amount, and frequency of the debtor’s income

3. A list of all of the debtor’s property

4. A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc

Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse is required so that the court, the trustee and creditors can evaluate the household’s financial position.

 When an individual files a Chapter 13 petition

When an individual files a Chapter 13 petition

When an individual files a Chapter 13 bankruptcy petition, an impartial trustee is appointed to administer the case. In some districts, the U.S. trustee or bankruptcy administrator appoints a standing trustee to serve in all Chapter 13 cases. The Chapter 13 trustee evaluates the case as well as serves as a disbursing agent, collecting payments from the debtor and making distributions to creditors.

Filing the petition under Chapter 13 “automatically stays” (stops) most collection actions against the debtor or the debtor’s property. However, filing the petition does not stay certain types of actions and the stay may be effective only for a short time in some situations. The stay arises by operation of law and requires no judicial action. Creditors generally may not initiate or continue lawsuits, wage garnishments or even make telephone calls demanding payments as long as the stay is in effect. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor.

Chapter 13 also contains a special automatic stay provision that protects co-debtors. A creditor may not seek to collect a “consumer debt” from any individual who is liable along with the debtor, unless the bankruptcy court authorizes otherwise. Consumer debts are those incurred by an individual primarily for a personal, family or household purpose.

Individuals may use a Chapter 13 bankruptcy proceeding to save their home from foreclosure. The automatic stay stops the foreclosure proceeding as soon as the individual files the Chapter 13 petition. The individual may then bring the past-due payments current over a reasonable period of time. Nevertheless, the debtor may still lose the home if the mortgage company completes the foreclosure sale under state law before the debtor files the petition. The debtor may also lose the home if he or she fails to make the regular mortgage payments that come due after the Chapter 13 filing.

Creditors meeting

Between 21 and 50 days after the debtor files the Chapter 13 petition, the Chapter 13 trustee will hold a meeting of creditors. If the U.S. trustee or bankruptcy administrator schedules the meeting at a place that does not have regular U.S. trustee or bankruptcy administrator staffing, the meeting may be held no more than 60 days after the debtor files. During this meeting, the trustee places the debtor under oath and both the trustee and creditors may ask questions. The debtor must attend the meeting and answer questions regarding his or her financial affairs and the proposed terms of the plan.

If a husband and wife filed a joint petition, they both must attend the creditors’ meeting and answer questions. To preserve their independent judgment, bankruptcy judges are prohibited from attending the creditors’ meeting. The parties normally resolve problems concerning the plan either during or shortly after the creditors’ meeting. Generally, the debtor can avoid problems by consulting with the trustee prior to the meeting and by making sure that the petition and plan are complete and accurate.

In a Chapter 13 bankruptcy case, to participate in distributions from the bankruptcy estate, unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. However, a governmental unit has 180 days from the date the case is filed a proof of claim.

After the meeting of creditors, the debtor, the Chapter 13 trustee and those creditors who wish to attend will come to court for a hearing on the debtor’s Chapter 13 repayment plan.

Chapter 13 bankruptcy plan and conformation hearing

Unless the court grants an extension, the debtor must file a repayment plan with the petition or within 14 days after the petition is filed. A plan must be submitted for court approval and must provide for payments of fixed amounts to the trustee on a regular basis, typically weekly 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.

types of claims

types of claims

There are three types of claims: priority, secured, and unsecured.

1. Priority claims are those granted special status by the bankruptcy law, such as most taxes and the costs of bankruptcy proceeding.

2. Secured claims are those for which the creditor has the right to take back certain property (i.e., the collateral) if the debtor does not pay the underlying debt.

3. In contrast to secured claims, unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by the debtor.

If the debtor wants to keep the collateral securing a particular claim, the plan must provide that the holder of the secured claim receive the value of the collateral at least. If the obligation underlying the secured claim was used to buy the collateral (e.g., a car loan) and the debt was incurred within certain time frames before the bankruptcy filing, the plan must provide for full payment of the debt, not just the value of the collateral.

Making the plan work

The provisions of a confirmed plan bind the debtor and each creditor. Once the plan is confirmed by the court, the debtor must make the plan work. The debtor must make regular payments to the trustee either directly or through payroll deduction 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 being made, the debtor may not incur new debt without consulting the trustee. This is because additional debt may compromise the debtor’s ability to complete the plan.

A debtor may make plan payments through payroll deductions. This practice increases the likelihood that payments will be made on time and that the debtor will complete the plan. In the event that the debtor fails to make the payments due under the confirmed plan, the court may dismiss the case or convert it to a liquidation case under Chapter 7 of the Bankruptcy Code. The court may also dismiss or convert the debtor’s case if the debtor fails to pay any post-filing domestic support obligations (i.e., child support, alimony) or fails to make required tax filings during the case.

Chapter 13 discharge

Chapter 13 discharge

Chapter 13 discharge

The bankruptcy law regarding the scope of Chapter 13 discharge is complex and has undergone major changes. This means that debtors should consult a competent legal counsel regarding the scope of the Chapter 13 discharge prior to filing.
A Chapter 13 debtor is entitled to a discharge upon completion of all payments under the Chapter 13 plan as long as the debtor:

1. certifies (if applicable) that all domestic support obligations that came due prior to making such certification have been paid

2. has not received a discharge in a prior case filed within a certain time frame (two years for prior Chapter 13 cases and four years for prior Chapter 7, 11 and 12 cases)

3. has completed an approved course in financial management (if the U.S. trustee or bankruptcy administrator for the debtor’s district has determined that such courses are available to the debtor).

However, the court will not enter the discharge until it determines, after notice and a hearing, that there is no reason to believe that there is any pending proceeding that might give rise to a limitation on the debtor’s homestead exemption.

The discharge releases the debtor from all debts provided for by the plan or disallows with limited exceptions. Creditors provided for in full or in part under the Chapter 13 plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations.

As a general rule, the discharge releases the debtor from all debts provided for by the plan or disallows with few exceptions. Debts not discharged in Chapter 13 include certain long-term obligations (such as a home mortgage), debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor’s conviction of a crime.

To the extent that they are not fully paid under the Chapter 13 plan, the debtor will still be responsible for these debts after the bankruptcy case has concluded. Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for restitution or damages awarded in a civil case for willful or malicious actions by the debtor that cause personal injury or death to a person will be discharged unless a creditor timely files and prevails in an action to have such debts declared nondischargeable.

The discharge in a Chapter 13 case is somewhat broader compared to a Chapter 7 case. Debts dischargeable in Chapter 13 but not in Chapter 7 include debts for wilful and malicious injury to property (as opposed to a person), debts incurred to pay non-dischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings.

Chapter 13 bankruptcy hardship discharge

After confirmation of a plan, circumstances may arise that prevent debtors from completing their plans. In such situations, the debtor may ask the court to grant a “hardship discharge.” Generally, such a discharge is available only if:

1. the debtor’s failure to complete plan payments is due to circumstances beyond the debtor’s control and through no fault of the debtor

2. creditors have received at least as much as they would have received in a Chapter 7 liquidation case

3. modification of the plan is not possible

Injury or illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge. The hardship discharge is more limited than the discharge described above and does not apply to any debts that are nondischargeable in a Chapter 7 case.