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.
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:
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.
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
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
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
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.