Chapter 13 -- Reorganization
What is Chapter 13
Chapter 13 bankruptcy differs from Chapter 7 first and foremost in that the debtor gets to keep all of his property (ie remain a Debtor-In-Possession). The heart of Chapter 13 is a payment plan through which the debtor will pay back some or all of the debts over a period of time from his income.
With the new laws, Chapter 13 is the only available option for certain debtors. Others may still be able to choose between Chapter 7 and Chapter 13. The determination of which chapter applies and whether the debtor can make a choice (the dreaded Means Test) is something your attorney will take you through.
Chapter 13 also requires that secured debts (houses, cars) do not exceed $922,975 while unsecured debts (credit cards, etc.) must be under $307,675.
Before a Chapter 13 case is filed, as with Chapter 7, the debtor must undergo credit counseling from an approved agency. There is a small fee (around $50) for fulfill this requirement, and this fee may be waived for those unable to pay. You will receive a certificate of completing from the counseling agency, and this certificate is required before a bankruptcy filing is accepted by the court.
The filing itself is a complicated maze of 30-40+ pages of questions relating to income, expenses, gifts, past or present businesses, lawsuits, prior bankruptcies, real property, bank accounts, debts and how those debts may be repaid. Along with this packet, the debtor must submit tax returns from the prior year and proof that tax returns have been filed during years further past. A filing fee of $274 is required, and this is payable directly to the court.
At the heart of the Chapter 13 case is "The Plan," which is a part of the lengthy filing described above. The plan describes in detail how the debts will be repaid, over what period of time, and which debts will be discharged after the plan period completes.
Certain debts must be repaid in full. These include child support, alimony, taxes, and a few others, and these get "priority" in the repayment scheme. Morever, the plan must completely repay any defauls or arrears on secured debts, such as your home or car. Your attorney will figure out exactly how to allocate the payment when your plan is being drafted.
Any money remaining after living expenses, priority debts, and secured debts must go to repay the unsecured debts, which are generally the largest consumer debts and include credit cards, medical bills, etc.
The plan will last either 3 or 5 years, another issue decided by the Means Test and by how your income relates to certain state averages. Some higher income debtors will be required to do a 5 year plan while others will be able to do 3 years. Of course, the plan will end before the 3 or 5 year mark if all debts have been repaid in full.
The debtor must begin making payments under the Chapter 13 Plan within 30 days after filing it with the bankruptcy court. Payments are made directly to the bankruptcy trustee, who is a court appointed official overseeing the case. Once the plan is approved and confirmed, the trustee will begin to distribute some of the money to your creditors, while keeping an "administrative fee" for himself.
For those with regular jobs, payments may be automatically withheld from the paychecks and forwarded to the Trustee directly.
How Much You Must Pay
The plan may be modified for a good reason, such as loss of job or disability. In that event, the plan may be extended, payments may be reduced, or certain debts may be discharged sooner. The debtor also has the option of converting the case to Chapter 7.
If for some reason you cannot finish a Chapter 13 repayment plan -- for example, you lose your job six months into the plan and canít keep up the payments -- the bankruptcy trustee may modify your plan. The trustee may:
If it's clear that thereís no way youíll be able to complete the plan because of circumstances beyond your control, the court might let you discharge your debts on the basis of hardship. Examples of hardship would be a sudden plant closing in a one-factory town or a debilitating illness.
If the bankruptcy court wonít let you modify your plan or give you a hardship discharge, you can:
How a Chapter 13 Case Ends
Once you complete your repayment plan, all remaining debts that are eligible for discharge will be wiped out. Before you can receive a discharge, you must show the court that you are current on your child support and/or alimony obligations, and that you have completed a budget counseling course with an agency approved by the United States Trustee. (This requirement is separate from the mandatory credit counseling you must undergo before filing for bankruptcy).
Law Offices of D. Lev, P.C.
134 Main Street
Watertown, MA 02472
(617) 556-9990 office
(617) 830-0005 fax
Contact Attorney Lev