Chapter 13 is a special part of the bankruptcy law. It lets you file a payment plan and gives you a way to repay all or part of your debts while protecting you or your co-signer from claims by creditors. The plan essentially sets out your debts and says how you intend to pay them. If your financial problems or debts cannot be helped by consumer credit counseling or a Chapter 7 straight liquidation, Chapter 13 may be an alternative for you. The filing fee is $310.
The law does not require you to have a lawyer. However, Chapter 13 bankruptcy can be complicated and the bankruptcy law changes from time to time. You may want to talk with a lawyer before filing a Chapter 13 case. Note that hiring an attorney for a Chapter 13 case generally costs more than hiring one for a Chapter 7 case.
To qualify for Chapter 13, you must meet several requirements. You must be an individual, or husband and wife, or a sole proprietor of a business. You must have a regular income, even if from government benefits, pension or child or spousal support. A partnership or a corporation does not qualify for this type of bankruptcy. At the time of this writing, your unsecured debts must be less than $419,275 and your secured debts less than $1,257,850. A secured debt is one for which the creditor has retained an interest in some of your property, such as when you obtain a mortgage on your house or finance the purchase of a car.
The maximum length of a Chapter 13 plan is five years. As a result of COVID-19, under certain circumstances the payment plan can be extended to seven years. You cannot receive a discharge in a Chapter 13 case if you have received a discharge in a Chapter 7 case filed within the last four years. The same is true if you received a Chapter 13 discharge in a case filed within the last two years.
There are specific procedures involved in filing a Chapter 13 plan. You or your lawyer must prepare a financial summary of how much you owe and to whom. This includes what your assets are, and what are your monthly income and living expenses. You must also prepare a proposed plan for repayment of your debts. Your plan will provide for monthly payments to the trustee for distribution to your creditors. The amount of your monthly payments depends on a number of factors, including your income and expenses. All of these items must be prepared on court-approved forms.
Before you can file for bankruptcy, you must complete a credit counseling course. When you complete the course, you receive a certificate of completion, which is good for 180 days. After you file bankruptcy, and before you can receive a final discharge of your debts, you must complete a debtor-education course. Both of these courses can be completed online. Depending on your financial situation, you may have to pay a course fee.
Once you file your Chapter 13 case, the court will appoint a trustee. The trustee has a number of duties, one of which is to make the payments to your creditors. This comes from the money you pay to the trustee pursuant to your plan. Shortly after you file the bankruptcy, you must submit a copy of your most recently filed federal tax return, or a transcript of it, to the trustee. You must also file all required state, federal and local tax returns, and continue to file them during the period of the plan. You must give to the trustee any net state and federal refunds that you receive. Before you can receive a discharge, you must certify that all domestic support obligations have been paid in full or that your plan provides for the payment of the obligations. A domestic support obligation is essentially spousal support (alimony) or child support. If you fail to pay domestic support obligations during the plan, the court may dismiss your case.
You are required to make your first payment to the trustee within 30 days of the date you filed your plan even if your plan is not yet confirmed by the court. It is important to understand that you have to make the payments on time. If you miss a payment, the trustee will start the procedure to dismiss your case. Only the bankruptcy court can authorize you to miss a payment. Similarly, without permission from the trustee, you cannot enter into any credit obligations during the course of the plan.
After you file, the bankruptcy court sets a date for a hearing. This hearing is called the meeting of creditors or the “341(a) hearing.” You and all of your creditors are notified of the time, date and place of this meeting, and you are required to attend and answer questions under oath about your financial matters.
The appointed trustee for your case conducts the meeting. It is the trustee’s job to verify the financial information you give. The trustee then determines whether the trustee can recommend to the judge that your plan can be confirmed. At the meeting, the trustee and your creditors may question you about your income, expenses, property, past earnings and your proposed repayment schedule.
About six weeks after the 341(a) hearing, the court schedules another hearing. This is to determine if your plan is acceptable and meets all of the requirements. This is called the confirmation hearing. The court notifies you of the date of the confirmation hearing. At the confirmation hearing, the judge determines whether your plan should be confirmed and allowed to proceed. The creditors may attend this hearing and offer any objections. You are not required to be at the meeting, particularly if you have an attorney. If your plan is confirmed, and you are employed, your employer may be ordered to make monthly payments to the trustee by taking them out of your wages.
Benefits Available With Confirmed Chapter 13 Plans
Your confirmed Chapter 13 plan does have benefits. They are available if the plan is filed in good faith, the filing fees are paid, you can make your proposed payments and you comply with all of the requirements. The benefits are:
Legal Editor: Richard Slottee, Sept 2020