When considering personal bankruptcy Chapter 13 is one way for debtors to gain relief from creditors, get their lives back on track and eventually reestablish their credit. But Chapter 13 is not for everyone. After pursuing this list of Frequently Asked Questions, you’ll begin to understand how Chapter 13 works and if it is a viable choice.

• 1) What is Chapter 13 Bankruptcy?

This type of bankruptcy is for individuals who want to pay off their debts. Under Chapter 13, which is also known as reorganization bankruptcy, petitioners are allowed three to five years to eliminate their debts.

• 2) For whom is Chapter 13 designed?

Those who file reorganization bankruptcy usually possess property that is non-exempt under Chapter 7. Often they have substantial equity in their home and other assets. In order to file for Chapter 13, debtors must have a reliable income that allows them to pay their living expenses and slowly pay down their debt.

• 3) Who may file under Chapter 13?

In order to file for bankruptcy, a person must reside in, conduct business in or own property in the country. The petitioner must have a regular income, secured debt that totals less than $1,010,650 and unsecured debt that totals no more than $336,900. He/she may not have been a petitioner in another bankruptcy case that has been dismissed within the last 180 days and may not have had a Chapter 13 bankruptcy discharged in the last two years or a Chapter 7 in the last four. If all above provisions are met, then a person filing for Chapter 13 may do so even if they have filed for bankruptcy or been awarded a discharge in the past. Limited liability companies, corporations and partnerships may not file for Chapter 13.

• 4) Must the petitioner seek credit counseling?

Yes, in order to file for bankruptcy, the petitioner must undergo credit counseling from a company that has been approved by the United States Trustee's office. Such counseling agencies may charge for their services, but they must either reduce their rate or waive their fee if a debtor cannot afford to pay.

• 5) Where does one file a Chapter 13 petition?

A petition is filed by the debtor in the bankruptcy court, which is a unit of the federal district court, of the district in which he/she has lived for the better part of the last 180 days.

• 6) Should a husband and wife file jointly under Chapter 13?

A husband and wife may want to file jointly. They may do so if each meets the criteria for Chapter 13. The exceptions to meeting the criteria is that one and not both are required to have a steady income and taken together their debts may not exceed the debt limitations stated in question 3. Couples should strongly consider filing for Chapter 13 if both are liable for a significant amount of the debt or if both have a regular income.

• 7) If you’re self-employed may you file Chapter 13?

• Yes, as long as he/she meets the requirements outlined in question 3.  While filing for Chapter 13, a self-employed person may still run their business.

• 8) What’s the basic difference between Chapter 13 and Chapter 7?

Chapter 13 is designed for people who want to payoff a substantial amount of their debt, have enough income to do so and possess a large amount of equity, while Chapter 7 is for those who are unable to payoff their debt, lack significant income and do not have a large amount of equity.

• 9) May a Chapter 7 case be converted to a Chapter 13?

Yes, the trustee appointed by the court may decide that the debtor has the means to payoff their debt and may move to convert from a Chapter 7 to a Chapter 13. 

• 10) How does it work?

This would occur after the trustee applies a means test to the case. The means test helps determine if instead of having a major portion of their debts discharged the debtor has enough income to pay them off in three to five years.

• 11) How much does it cost to file?

The filing fee for Chapter 13 is $274.

• 12) What’s an automatic stay?

Once someone petitions the court for bankruptcy, the trustee contacts all creditors listed on the petition and orders an automatic stay on all debt collection procedures. During the bankruptcy process, all creditors must cease all attempts to collect money owed to them.

• 13) Does the automatic stay not cover some debts?

Some debts are not covered by the stay. Debts such as back child support and alimony may still be collected. Two other types of actions that are unaffected by the stay are IRS tax liens and criminal proceedings that may involve debt or restitution.

• 14) Will I see a judge?

It’s rare for a petitioner to see a judge. Instead, the court will appoint a trustee who will oversee the case. The case will go before a judge if creditors contest it and the trustee is unable to settle the complaints.

• 15) What is a bankruptcy trustee?

The trustee is a court appointed agent who oversees bankruptcy cases through each and every phase. They will review your paperwork, contact creditors, meet with you and your creditors and determine if your Chapter 13 petition is viable. They also handle all payments to your creditors. They will administer your case until it is closed.

• 16) What is the Chapter 13 plan?

The plan, which is delivered to the trustee within 14 days of filing for bankruptcy, is a detailed repayment plan. It includes a list of all creditors, how much will be paid to each creditor and how long it will take to pay back each debt.

• 17) Under the plan, how much of a debtor’s income must be paid to the trustee?

All disposable income, that is any money received that is greater than that which is deemed necessary for the debtor’s and their dependent’s support, must be paid to the trustee for distribution to creditors.

• 18) What debts may be paid under the plan?

Under Chapter 13, debtors must pay "priority debts," which are called such because they are thought to be important enough to be listed at the top of the Chapter 13 repayment plan. Debts that are included are wages owed to workers, certain tax obligations and child support and alimony.

Also, debtors are required to pay regularly scheduled payments on secured debts, including mortgage and car loans. Any amount in arrears must also be paid.

Finally, any unsecured debts, including credit card and medical bills, must be included in the plan.

• 19) Must all debts be paid in full?

Debtors aren’t required to pay unsecured debts in full or, in some cases, at all. However, they do have to display a willingness to put some income towards paying down such bills.

• 20) Are all creditors treated the same?

With unsecured debts, if there is reason to do so, certain creditors may be designated as those that will be paid in full, while others may be categorized as those that will be paid little or nothing.

• 21) Will my employer be informed of my filing?

In most cases, an employer will be contacted due to the fact that the court must verify income. Additionally, usually the employer is charged with making payments out of your check to the trustee.

• 22) When must a petitioner appear in court?

Most appear in court twice. Once for the meeting with the creditors and trustee, which is the 341 meeting, and again for the confirmation of his/her repayment plan with the trustee. The meeting with the creditors usually occurs about one month after the initial filing of the petition. The second meeting could happen later that day or at a later date, usually within a month of the first court date.

23) What is the 341 meeting and how does it work?
This is a meeting where the trustee determines if the debtor has been truthful regarding his/her assets and ability to pay. The two primary participants in the meeting are the trustee and debtor. Creditors are invited to attend. They may or may not.

This is basically a fact-finding meeting where the debtor, under oath, is asked questions regarding their income and debt. The meeting, which is tape-recorded by the court, generally lasted 15 minutes.

• 24) Must all creditors approve of the plan?

Creditors do not approve a debtor’s plan; this is the job of the court trustee. However, if secured debtors are not dealt with properly or if unsecured creditors file objections, then a repayment plan will not be approved until all questions and objections have been addressed and settled.

• 25) What is required for the court to approve a Chapter 13 plan?

The court may confirm a Chapter 13 plan if:

•  • The plan complies with Chapter 13 legal requirements.
•  • The debtor has paid all required fees, charges, and deposits.
•  • Under the repayment plan, all priority claims will be paid in full.
•  • The plan was proposed in good faith.
•  • Each unsecured creditor will receive under the plan at least as much as they would have received had the debtor filed under Chapter 7.
•  • It appears that the debtor will be able to make the required payments and comply with the plan.
•  • Each secured creditor has agreed to do one of the following:
• • o Accepted the debtor’s proposal
  • o Retained its lien to be paid in full under the plan
  • o Had the collateral surrendered to them by the debtor
  • o Agreed to accept full payment from the debtor outside the plan

• 26) What if the court does not approve a Chapter 13 plan?

The debtor will be given the reasons as to why his/her repayment plan has not been approved and he/she may then modify it to meet the court’s approval.

• 27) When must the person who’s been granted Chapter 13 start paying off their debt?

The repayment process must begin with 30 days of filing the plan. This is true even if the plan has not yet been approved by the court.

• 28) What if the debtor is unable to make payments under Chapter 13?

If this is temporary and due to injury, illness or unemployment, then the debtor may asks to have the plan modified in order for the debtor to resume payments when they are able. If the debtor finds that they will be unable to fulfill the plan for an extended period of time or indefinitely, then the case may be dismissed or converted to a Chapter 7.

• 29) May the debtor at some point decide to discontinue the case?

A debtor may not simply stop making payments but they may petition the court to dismiss the case or convert it to a Chapter 7. In order to convert their Chapter 13 to a Chapter 7, the debtor must qualify under the mean’s test.

• 30) Are cosigned or guaranteed debts treated differently than other debts?

If it is a non-business debt and it is being paid in full under the payment plan, then the creditor may not try to collect any of the debt from the person who guaranteed or cosigned for it. However, if the debt is not being paid in full, then the creditor may collect the balance from the person who guaranteed or cosigned for it. If it is a business debt, then the creditor may collect the debt from the guarantors or cosigners even if it is being paid under Chapter 13.

• 31) What is Chapter 13 discharge?

A discharge from the court means that it has released the debtor from certain debts and ordered that creditors may not collect them from the person who filed for Chapter 13. There are two kinds of discharges of debt under Chapter 13.

The first, which is called a successful or full discharge, is given to a debtor who has completed his/her payment plan. The second, which is termed an unsuccessful or partial discharge, is granted to someone who is unable to complete the payment plan due to circumstances that are beyond their control, such as illness, injury or termination of employment.

• 32) What debts may be discharged under Chapter 13?

With a full discharge, the debtor is free from all debts except the following:

•  • Debts not covered by the payment plan and paid apart from the plan.
•  • Debts associated with divorce, including alimony, child support and maintenance.
•  • Debts or restitution connected to any criminal activity in which the debtor has been involved.
•  • Any new debts incurred while the plan was in effect.
•  • Installment debts that have a final payment after the payment plan has been completed.
•  • Student loans or education debts that were incurred less than seven years prior to filing for Chapter 13.

A partial discharge covers all debt except the following:

•  • Secured debts.
•  • Debts not covered by the plan and paid outside of the plan.
•  • Installment debts that have a final payment after the payment plan has been completed.
•  • Any new debts incurred while the plan was in effect.

Debts not dischargeable under Chapter 7.

 

• 33) How long do I have to pay off the debt?

Depending upon your income and the amount of debt you’re carrying, anywhere from three to five years.

• 34) How does Chapter 13 differ from a private debt consolidation company?

The court is able to issue stays, force unsecured creditors to take a portion of what is owed to them and discharge debts. A private debt consolidation company does not possess such power.

• 35) Does filing for Chapter 13 affect my credit rating?

Initially, it will most likely harm one’s credit rating but as debts are paid off eventually a debtor’s credit score will rise. And once they complete the plan and if they stay out of debt trouble, their credit score should start to become healthy again.

Most people who are considering filing for bankruptcy can benefit from talking to a bankruptcy attorney. If you have questions or concerns regarding Chapter 13 or bankruptcy in general, then please contact us at (888)540-3720.