Hobbs & Hain, P.C.

What is a Chapter 13 Bankruptcy case?

 

 

A Chapter 13 plan is a written proposal filed with the Bankruptcy Court that tells creditors how much money the Debtor will pay to the Chapter 13 Trustee, how long the Debtor’s payments will last, and how much will be paid to each of the Debtor’s creditors.

 

How does a Chapter 13 case differ from a Chapter 7 case?

 

In Chapter 7 cases, a Debtor’s nonexempt property, if any, is sold by the Trustee for the payment of the Debtor’s creditors. In Chapter 13, a Debtor generally keeps all of his property while committing a portion of his future income to the repayment of as much of the Debtor’s debts as is possible. Most Chapter 7 cases do not involve the Debtor giving up any property. Generally, a Debtor’s exemptions are sufficient to cover all of the Debtor’s assets. A Chapter 13 discharge is slightly broader than a Chapter 7 discharge and releases the Debtor from liability for a few types of debts that are not dischargeable under Chapter 7. A Chapter 13 case normally lasts much longer than a Chapter 7 case and is usually more expensive for the Debtor.

 

When is it better to file a Chapter 13 case rather than a Chapter 7 case?

 

Debtors who can repay all, or most, of their debt from their future earnings and those who would lose valuable property in a Chapter 7 case should consider a Chapter 13 case. Chapter 13 is the only option for Debtors who fail the means test or are otherwise ineligible for relief under Chapter 7. Chapter 13 may also be the better choice for Debtors who have issues with nondischargeable debt.

 

When must the Debtor begin making payments to the Chapter 13 Trustee and how are payments made?

 

The Debtor must begin making payments to the Chapter 13 Trustee within 30 days after the Chapter 13 case is filed with the court. Payments can be made by deduction order to the Debtor’s employer. Payments made directly must be made in the form of cash or certified funds to the Trustee.

 

Must all debts be paid in full under a Chapter 13 plan?

 

No. Certain debts like domestic support obligations and taxes must be paid in full. However, unsecured creditors can receive from 0% to 100% of their debt. A Chapter 13 plan which provides for repayment of less than 70% of a Debtor’s unsecured obligations has the same effect as the filing of a Chapter 7 case.

 

Do I have to list all of my creditors?

 

Yes, all creditors must be listed. However, home mortgages and car payments can be paid directly to creditors.

 

How long does a Chapter 13 plan last?

 

The length of a Chapter 13 plan depends on the Debtor’s income. If the Debtor’s annual income is less than the median family income, the plan must be at least 3 years. If the Debtor’s annual income exceeds the median family income, the length of the plan must be 5 years unless all unsecured claims can be paid off in a shorter period. Under no circumstances can the plan last more than 5 years.

 

Who is eligible to file a Chapter 13 case?

 

Only individuals who have sufficient regular and stable income and meet certain other requirements may file for relief under Chapter 13. Businesses are generally not eligible to file a Chapter 13 case. A husband and wife may file a joint case. Self-employed Debtor’s may also file for relief and continue to operate their businesses while in Chapter 13.

 

What fees are charged in a Chapter 13 case?

 

There is a filing fee charged by the Court when the case is filed. The filing fee can be paid in installments as long as the Debtor has not filed a prior case where the filing fee was unpaid. In addition to the court costs, Debtors must pay for pre and post bankruptcy counseling, a credit report, attorney fees and fees charged by the Chapter 13 Trustee. Generally speaking, a Debtor can get into a Chapter 13 case, assuming the filing fee is to be paid in installments, with as little as $200 paid in advance. The ability to file a Chapter 13 case for little money down is one of the primary advantages of a Chapter 13 case.

 

How does filing a Chapter 13 case affect a person's credit rating?

 

The filing of a bankruptcy case can be reported on a Debtor’s credit report for up to 10 years. Most people find that by filing a bankruptcy case their credit generally improves after they receive their discharge.

 

What happens if a Debtor is unable to make all of his Chapter 13 payments?

 

If a Debtor fails to make the payments required by his plan, his case is subject to dismissal. Alternatively, the Debtor can elect to convert to a Chapter 7 case. If a Chapter 13 case is dismissed without the payment of all plan payments, the Debtor does not receive a discharge.

 

How is the attorney fee determine in a Chapter 13 case?

 

The fee charged by a lawyer for representing a Debtor in a Chapter 13 case must be reviewed and approved by the Bankruptcy Court. The court will not approve a fee unless it finds the fee to be reasonable.