What is a Chapter 13 Bankruptcy?
A Chapter 13 Bankruptcy is the second most common form of bankruptcy filed and is commonly referred to as a Wage Earner'sBankruptcy. It is when a person's finances are reorganized and a plan is developed for the debtor to repay his or her debts in a set period of either 3 or 5 years time.
A Chapter 13 Bankruptcy is typically utilized in situations where a person owes secured debts that he or she is trying to get caught back-up on. For example, a Chapter 13 Bankruptcy is a tool frequently utilized by people who fall behind on their mortgages or car loans and wish to get caught back up with the missed payments. However, the individual will now need to pay back the “arrearages” as well as remain current on the regular monthly post-filing payments that become due. Another reason debtors may choose to file this type of bankruptcy is that they make over the median income in the state in which they live and do not qualify for a Chapter 7 Bankruptcy, which would otherwise eliminate most, if not all, of their debts.
The Benefits and Drawbacks to Filing a Chapter 13 Bankruptcy
- 3 or 5 Year Plan to Get Current on Past Due Mortgage, Car Payments and/or Taxes
- Eliminates Debts Not able to be Paid in Bankruptcy Plan
- Helps With Mortgage Modification
- Instantly Stops Almost Any Kind of Collection Activity Including Sheriff Sales, Car Repossessions, and Court Actions
- Have to Repay a Portion of Unsecured Debts through 3 or 5 Year Bankruptcy Plan
- You are in the Bankruptcy for a 3 or 5 Year Period
- You are in the Bankruptcy for a 3 or 5 Year Period
What is the Process of a Typical Chapter 13 Personal Bankruptcy?
Preparing the Chapter 13 Petition
A typical Chapter 13 bankruptcy case begins with you gathering the documents needed by your bankruptcy lawyer to fill out your bankruptcy petition and related schedules. The Petition and Schedules contain a list of your assets, debts, allowable exemptions, income and expenses, financial and property transactions, and many other things. In order for your bankruptcy attorney to fill out everything correctly he or she will need to have copies of your last 2 years of tax returns, last 90 days of bank statements, last 6 months of paystubs for everyone bringing in an income in the home, your last mortgage statement, if applicable, your last vehicle loan statements, if applicable, and possibly more information depending upon your situation.
Your bankruptcy attorney will also probably pull a copy of your credit report so that he or she can quickly get a list of most, if not all, of your creditors as well as related account, balance, and address information. It is very important that you closely review the creditors listed on the related schedule of the bankruptcy petition to ensure that all of your creditors have correctly been listed.
Additionally, many Debtors in a Chapter 13 Bankruptcy are behind on their secured assets like a home or a vehicle. Consequently, it is important that your bankruptcy attorney has the most up to date account balance showing how far you are behind on the secured loans so that you can get caught back up.
Next, your bankruptcy lawyer will ask you a series of questions to make sure that everything in the bankruptcy filing is filled out correctly and there are no issues with your case that would prevent you from obtaining a discharge or the bankruptcy trustee coming after an asset. After, making sure everything is filled out correctly and you have reviewed the petition and schedules thoroughly, you will sign the many signature lines.
Bankruptcy Counseling Requirement
In the 2005 amendments to the Bankruptcy Code, there was a requirement added that all Debtors must obtain credit counseling before filing a bankruptcy. There are many courses available that can be done by computer, phone, or paper, but this counseling must be done by a counseling agency that is approved by the United States Trustee's Office and completed within 180 days before filing.
Preparing the Chapter 13 Bankruptcy Means Test
In the Chapter 13 context, the bankruptcy means test helps determine your disposable income, how much your monthly payment will be and how much debt will need to be paid back. Your bankruptcy attorney completes the test utilizing the last 6 months of the income coming into your household, the county and state that you live in, the amount of people living in your household, certain allowable expenses, and many other factors.
Filing the Chapter 13 Bankruptcy
Next, after you signed and reviewed all of the completed bankruptcy forms and schedules as well as completed the bankruptcy counseling, your case will likely be filed with the local bankruptcy court electronically and all of your creditors will be notified by mail automatically.
Chapter 13 Bankruptcy Trustee is Appointed / Payments on Your Chapter 13 Bankruptcy Plan Begin
The court will then automatically appoint a trustee, who is assigned by location, to oversee your bankruptcy case as well as schedule the meeting of creditors for you and your attorney to attend. Your attorney then sends information to the trustee to support the information that is contained in your bankruptcy filing. Examples of some things that would probably be sent the bankruptcy trustee might be the last 90 days of bank statements, 60 days of paystubs, your last mortgage and car statements, proof of value of your vehicles and property, the last year's tax return, and anything else pertinent depending upon your situation.
Additionally, you will need to start paying the Chapter 13 Bankruptcy Trustee your bankruptcy plan payments as well as resume your regular monthly secured debt payments. For instance, if you were behind on your mortgage or car payments, you will now need to start making the regular monthly payments again in addition to your plan payments which will be comprised of the monies to get you caught back up.
341 Meeting of Creditors Scheduled / The Meeting of Creditors
As mentioned previously, when the bankruptcy filing is complete, you will receive notice of your 341 Meeting of Creditor's date, time and location. You will bring your driver's license and social security card to the meeting to verify your identity as well as answer questions from the trustee about your bankruptcy forms under oath. Generally, this meeting is 5 - 15 minutes in length and is pretty routine without any creditors showing up.
Second Bankruptcy or the Financial Management Class
At some point, within 60 days after you file the bankruptcy petition, you will need to complete a second counseling course known as the Financial Management Course. Again, this is very similar to the first class you take and is also required under those 2005 Amendments to the Bankruptcy Code.
Chapter 13 Bankruptcy Confirmation Hearing
After the Meeting of Creditors, there will be something called a Chapter 13 Bankruptcy Confirmation Hearing. This is a hearing where specifics of your Bankruptcy Plan are reviewed by the Court and your Plan is either confirmed or disapproved by the Judge.
Getting Your Discharge in Bankruptcy
As long as there are no issues, after completing your plan in either the 36 or 60-month period, you will get your Order of Discharge in Bankruptcy and all of the debts that have not been paid in full will officially be wiped away.
Alex Tuttle has been recognized and rated as a Top Attorney and Distinguished Attorney in the area of Civil Litigation, as well as a Client Choice and Top Contributor by Avvo and regularly, represents clients in Bucks, Chester, Delaware, Montgomery, Lehigh, and Northampton Counties. If you are in need of any assistance or have any questions, please contact us to go over your situation. We would love the opportunity to help you and get your life back to normal.