What are the Advantages of Filing Chapter 13 Bankruptcy?
Chapter 13 offers numerous advantages and it is difficult to discuss them in a concise manner. Nonetheless, we will enumerate some concrete examples on how Chapter 13 Bankruptcy can be of great help to you. It is important to note that you can seek financial relief from Chapter 13 even if you previously filed a Chapter 7 case. Chapter 13 gives you some flexibility, allowing you to tailor its benefits to suit your specific needs.
Perhaps the most significant advantage is that Chapter 13 can give you a chance to save your home from foreclosure. By filing under this chapter, you can keep your home regardless of how far behind you are on your mortgage payments. Moreover, you can stop foreclosure proceedings and devise a repayment plan for past dues and future payments. Another advantage is that Chapter 13 will allow you to reschedule secured debts and even extend the payment term. This can lower the payments and help you keep certain properties that you may not be able to do with higher payments.
Chapter 13 has a provision that protects third parties who are liable with the debtor on consumer debts, thereby protecting co-signers. It will also allow you to consolidate your debts and pay the monthly dues to the court-appointed Trustee. Your car payments, credit card bills, mortgage arrears and other debts can be paid through the Trustee. So, instead of making several payments to creditors, you just need to make a single payment to the Trustee who will be responsible for dispersing payments to those creditors. This will make repayment easier while sparing you from repetitive and annoying calls from creditors.
There are a lot more advantages so we advise you to contact one of our attorneys for additional information. They will assess your financial situation and find other benefits that may be available to you under Chapter 13.
Am I Eligible for Chapter 13 Bankruptcy?
Any person, whether self-employed or running an unincorporated business, is eligible for Chapter 13 relief so long as his/her unsecured debts are less than $360,475 and secured debts are less than $1,081,400. These figures are periodically adjusted to reflect any changes in the consumer price index.
Business entities or corporations cannot file for Chapter 13 Bankruptcy. For individuals, there are important restrictions that apply. For instance, you cannot file under Chapter 13 or any other chapter for that matter if a prior bankruptcy was dismissed during the preceding 180 days. There could be a number of reasons behind this such as dismissal due to your willful failure to show up in court or abide by court orders, or dismissal after creditors sought relief from the court in order to recover certain assets upon which they hold liens.
Additionally, you cannot be a debtor under Chapter 13 or any other chapter of the Bankruptcy Code unless you have, within 180 days prior to filing, undergone credit counseling from an accredited credit counseling agency. Finally, you’ll need to prove to the bankruptcy court that you’ll have adequate income to meet your repayment obligations.
If I Am Eligible, How Do I Get Started?
If you are eligible, the first step is filing a Chapter 13 Bankruptcy Petition in the court in your home district. Upon filing the petition the bankruptcy court will enter an automatic stay which is an automatic injunction that temporarily stops actions by creditors including initiating or continuing judicial proceedings to collect debt; creating or enforcing a lien against your property; and setting-off of indebtedness owed to you prior to the start of the bankruptcy proceeding.
With the help of your attorney, you must also file the following:
(1) a schedule of assets and liabilities
(2) a schedule of current income and expenditures
(3) a schedule of executory contracts and unexpired leases
(4) a statement of financial affairs
(5) a certificate of credit counselling along with a copy of any debt repayment plan developed through credit counselling
(6) proof of payment from employers, if any, received 60 days before filing
(7) a statement of monthly net income and any anticipated increase in income or expenses after filing
(8) a record of any interest you have in federal or state qualified education or tuition accounts; and
(9) a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case.
Note: A husband and wife may file individual or joint petitions.
The list of required documents may look daunting but your attorney will help you organize and ease you through the entire process. This is one of the advantages of hiring the services of an experienced bankruptcy attorney instead of filing the petition on your own. The attorney will ensure that you have everything you need and will file the correct set of documents on your behalf.
How Much Does a Bankruptcy Petition Cost?
The cost for filing a Chapter 13 Bankruptcy petition is really not that high. The court charges a $235 case filing fee and a $39 miscellaneous administrative fee incurred during Chapter 13 proceedings.
What If I Can’t Afford The Court Costs?
In case you can’t afford to pay the court fees and costs all at one time, you may request the bankruptcy court to accept payments on the filing fee. However, bear in mind that the court must grant you permission, which is typically given based on the particular facts of your case.
After Filing A Petition, How Does a Chapter 13 Bankruptcy Work?
After filing your Chapter 13 petition, you will submit a proposed repayment plan for any debts and obligations. The plan will indicate how you intend to repay your debts over a 3 to 5-year window depending on your personal circumstances. The bankruptcy court will review your proposal, and if approved, a Trustee will be appointed to administer the case. The Trustee will be the one responsible for collecting your payments, distributing them to the creditors and supervising your compliance with the approved repayment plan.
Within 20 to 50 days after filing your Chapter 13 petition, the Trustee will schedule a meeting of creditors. You should attend the meeting and answer any queries pertaining to your financial affairs and the proposed terms of the repayment plan. After the meeting, a court hearing will be held to discuss your Chapter 13 payment plan. The judge will decide whether your plan is feasible and if it meets all Bankruptcy Code standards. Next, the Trustee will confirm your plan after which you can start repayment.
During the repayment period, the Trustee will have control over your personal finances, and you must submit any credit-related matters to the Trustee for review and approval. In addition, the bankruptcy court will not allow you to spend money on anything it considers “nonessential”, and you’ll have to abide by a stringent, court-imposed budget.
Your attorney will ensure that every form and document is properly provided and filled out correctly. Your attorney will also be responsible for contacting the Trustee in a timely manner to make sure that the repayment plan is feasible and that all creditors are amenable to it. These steps will speed up the process and prevent any delays in the commencement of your repayment schedule.
Who and When Do I Begin Paying According to the Approved Chapter 13 Plan?
In case you still have secured debts, such as a mortgage, the payments may not be included in the repayment plan so you’ll need to pay them off as you normally would. The payment schedule won’t be affected. If you fail to issue payment on a secured debt, the creditor may ask the court to lift the automatic stay and certain properties like your house could go into foreclosure proceedings.
On the other hand, unsecured debts must be integrated into the repayment plan together with some secured debts that were accrued before you filed for Chapter 13 Bankruptcy. For these debts you’ll make monthly payments based on the amount dictated by your plan. The Trustee will collect the payment and disburse it to the creditors according to how your plan was structured.
Note that any new debt you incur after filing Chapter 13 will not be a part of the bankruptcy case. Hence, you will pay according to the terms that you and the creditor agreed to.
How Many Months Do I Have To Repay My Debts?
This will depend on the size of your debt as well as your income. The range is anywhere between 36 and 60 months or 3 to 5 years.
Can I Pay the Plan Off Early?
Not really, it does not work that way. In the first place, if your income will allow for faster payback than the timeframe indicated in the plan, the Trustee would have set your repayment plan at the minimum 36 months and allocate a larger sum to go to your unsecured creditors. Moreover, if you are able to pay off the plan earlier than initially scheduled, it would mean that there is a change in your income. If such is the case, then you should have reported it and the Trustee will adjust your repayment plan accordingly.
If I Fall into Some Extra Money, Should I Pay More into My Plan?
You can but it’s generally not advisable. The smarter thing to do is save the money for an emergency. However, if there is a permanent change in your income, then you need to report it so you can file an amendment to your original plan and have it adjusted.
In a Chapter 13 Repayment Plan, How Much Money Will I Have to Pay Back?
The amount that you’ll need to pay will depend on your particular financial situation, specifically the amount of income you have left each month after subtracting the expenses deemed necessary by the court. This is referred to as your disposable income which will be committed to your plan over a 3 to 5-year period.
Am I Free from Foreclosure After I File for Bankruptcy?
The answer is YES. When you file a Chapter 13 Bankruptcy, the court will issue an order for relief which includes the “automatic stay.” This instructs your creditors to halt any collection activities without any excuses. In case your house has been scheduled for a foreclosure sale, it will be postponed while the bankruptcy is pending. However, if you start missing your payments, the automatic stay can be lifted and you’ll be stripped from all the protection afforded by Chapter 13 Bankruptcy.
Can Federal Income Tax Debts be Discharged Under Chapter 13 Bankruptcy?
As a general rule, most tax debts cannot be discharged.
What Happens If I Fail to Pay The Trustee?
After filing your Chapter 13 case, you are required to issue monthly payments to the appointed bankruptcy Trustee. If you fail to make the scheduled payments, your case could be dismissed. In case the Trustee moves to dismiss your case, you will automatically lose protection which means that any protective relief granted by the court will be negated.
What Happens If I Have Difficulties Making The Monthly Payment?
The moment you start having problems making your monthly payment, inform your attorney immediately so he/she may notify the Trustee or creditors involved. The Trustee may decide to dismiss your case; however, if it is just a one or two-month set back, most Trustees will allow you to make up the payments and will not dismiss the case. Keep in mind that this is not absolute but things usually go a lot smoother if you will relay your problems to your attorney instead of waiting and missing payments.
What If My Inability to Make Payments Becomes A Problem?
The worst case scenario is that your case will be dismissed. However, with the permission of the Trustee, you may convert the Chapter 13 Bankruptcy to another chapter like a liquidation bankruptcy such as Chapter 7. This is possible as long as you meet all the requirements of a Chapter 7 Bankruptcy, so as soon as you realize that payments will become an issue, inform your attorney so he/she can look into the options that are available to you.
Are There Any Legal Fees Aside from the One I Paid Before Filing?
Some attorneys charge reduced rates up front, with the remaining balance being paid through the plan. This makes it easier for some clients to file for bankruptcy. In addition, there may be some fees based on any additional motions such as work done on adversarial proceedings, plan amendments, or conversion to another chapter.
What is a Fair Fee for an Attorney in a Chapter 13 Bankruptcy?
Chapter 13 cases can be complicated and therefore legal fees tend to be higher. The average attorney’s fee will be anywhere between $3,500 and $4,500. This will increase if your Chapter 13 case involves a wholly-owned business, or other intricate legal issues.