Chapter 13 Frequently Asked Questions

1. What is a chapter 13 case?

Chapter 13 is the chapter under the Bankruptcy Code which allows a person to repay all or apportion of his or her debt under the protection of the bankruptcy court.

2. How does a chapter 13 differ from a chapter 7?

The basic difference is that in a Chapter 7 case the debtor’s nonexempt property is liquidated to pay as much as possible of the debts, while in a Chapter 13 a portion of the debtor’s future income is used top pay as much of the debt as is feasible.

3. When is chapter 13 preferable over a chapter 7?

Chapter 13 is usually preferable for a person who:

a. wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time,
b. has valuable nonexempt property or has valuable exempt property securing debts, either of which would be lost in a Chapter 7,
c. has sufficient assets with which to pay most debts, but needs temporary relief from creditors in order to do so.

4. How does a chapter 13 differ from a provate debt copnsolidation?

In a Chapter 13 case, the bankruptcy court can provide relief to the debtor that a private debt relief consolidation service cannot. The court can stop creditors from foreclosing or attaching the debtor’s property and can force unsecured creditors to accept a Chapter 13 plan.

5. What is a chapter 13 discharge?

It is a court order releasing a debtor from all of his or her debts and ordering creditors not to collect from the debtor. There are two types of Chapter 13 discharges:

a. a full or successful plan discharge, or
b. partial or unsuccessful plan discharge.

6. What is a chapter 13 plan?

It is a written plan presented to the bankruptcy court by a debtor that states how much money or property the debtor will pay to the Chapter 13 trustee, how long the debtor’s payments to the trustee will continue, how much will be paid to each creditor, and certain other matters.

7. What is a chapter 13 trustee?

A Chapter 13 trustee is a person appointed by the United States trustee to collect payments from the debtor, make payments to creditors in the manner set forth in the debtor’s plan and administer the debtor’s Chapter 13 case until it is closed.

8. Must all debts be paid in full under a chapter 13?

While priority debts, such as domestic support obligations and taxes, and fully secured debts must be paid in full, only the amount that the debtor can reasonably afford must be paid on most debts. The unpaid balances of most debts are discharged upon the completion of the plan.

9. How musch of a debtor’s income must be paid?

Usually all of the disposable income of the debtor and the debtor’s spouse for a 3 or 5 year period must be paid to the Chapter 13 trustee. Disposable income is income received by the debtor and his or her spouse that is not deemed to be necessary for the support of the debtor and his or her spouse.

10. When do payments begin?

The debtor must begin making payments to the Chapter 13 trustee within 30 days after the Chapter 13 case is filed with the court.

11. How long does a chpater 13 plan last?

A Chapter 13 plan must last for at least three years, unless all debts can be paid off in full in less time. A Chapter 13 plan cannot last for more than five years.

12. How are cosigned or guaranteed debts handled?

If a cosigned or guaranteed consumer debt is being paid in full under a Chapter 13 plan, the creditor may not collect the debt from the cosigner or guarantor. However, if the debt is not being paid in full under the plan, the creditor may collect the unpaid portion of the debt from the cosigner or guarantor.

13. Who can file a chapter 13 case?

Any individual is eligible to file a Chapter 13 case if he or she:

a. resides in, does business in, or owns property in the United States,
b. has regular income,
c. has unsecured debt of less than $307, 675.00,
d. has secured debt of less than $922,975.00,
e. has not intentionally dismissed another bankruptcy case within the last 180 days, and
f. has received a briefing from an approved credit counseling agency within the last 180 days.

14. May a husband and wife file a joint case?

A husband and wife may file a joint Chapter 13 is each of them meets the requirements above. If both spouses are liable for any significant debts, they should file a joint Chapter 13, even if only one of them has income. If both of them have regular income they should file a joint case.

15. May a self empolyed person file a chapter 13 case?

A self-employed person meeting the eligibility requirements may file a Chapter 13. The debtor engaged in business may continue to operate the business during his or her Chapter 13.

16. May a chapter 7 be converted to a chapter 13 case?

An existing Chapter 7 may be converted to a Chapter 13 at any time at the request of the debtor if the case has not previously been converted from a Chapter 13 to a Chapter 7.

17. What fees are charged in a capter 13 case?

There is a $189.00 filing fee charged when the case is filed. In addition the Chapter 13 trustee assesses a fee of 10 percent on all payments made by the debtor under the plan.

18. Will a person lose property in a chapter 13 case?

Usually the debtor will not lose property. Creditors are paid out of the debtor’s income and not from the debtor’s property. However there can be instances where debtor’s property will be sold to pay creditors.

19. How does filing affect collection proceedings?

The filing of a Chapter 13 case automatically stays or stops all lawsuits, attachments, garnishments, foreclosures and other action by creditors. A few days after the case is filed a notice will be mailed to the creditors advising them of the automatic stay.

20. May a person whoes debts are being administerd by a financail counselor file?

A financial counselor has no legal authority to prevent a person from filing any type of bankruptcy case, including a Chapter 13.

21. How does filing a chapter 13 affect a person credit rating?

In many case the filing of a Chapter 13 will worsen a debtor’s credit rating. However if most of the person’s debt is ultimately paid off under the plan, credit reporting agencies may take that fact into account.

22. When does a debtor appear in court?

Most debtors’ have to appear in court at least twice: Once is for a hearing called the 341 creditors and once for the confirmation of the Chapter 13 plan. The confirmation hearing could be on the same day as the 341 meeting of creditors.

23. What if the court does not approve the debtor’s plan?

If the court will not approve the plan initially proposed by a debtor, the debtor may modify the plan and seek court approval of the modified plan.