Chapter 13 Bankruptcy: A Fresh Start
Chapter 13 bankruptcy is another very common type of bankruptcy and is a very helpful tool for reorganizing your debts and getting a fresh start, and this article explains the benefits of the chapter 13 bankruptcy and how it’s different from a chapter 7 bankruptcy.
Here are a few examples of when a chapter 13 bankruptcy can be helpful:
- If you behind on your mortgage and the mortgage company refuses to accept anything less than the full amount owed and will not do a loan modification;
- If you are behind on your car payments and the finance company wants to repossess your car;
- If you have many liens on your home and your home does not have any equity;
- If your car payment is high and you wish to lower it;
- If you owe taxes and would like to pay them back over time;
- If you owe child support or alimony and want to pay them back over time;
- If you have certain kinds of debts that are not dischargeable in a chapter 7;
- If a friend or family member co-signed on a loan with you and you would like to protect them from creditor action.
Chapter 13 Schedules and Documentation
Similar to a chapter 7 bankruptcy, a chapter 13 bankruptcy involves compiling a complete picture of your financial situation. In a nutshell, this includes a review of all of the assets that own, a list of all of your creditors, your income and expenses, whether or not you have any leases, whether or not someone else is a co-debtor on any of your debts, a review of any prior bankruptcies you may have filed, and the completion of the Statement of Financial Affairs. In order to prepare all of this, you must compile financial documentation to back up everything that you schedule.
Chapter 13 Plan
The heart of the chapter 13 bankruptcy is the chapter 13 payment plan. This play is usually 3-5 years with an amount paid every month to the chapter 13 trustee, who accepts payment and administers them to creditors based upon the claims that are filed in your case.
Chapter 13 Debt Limits
In order to qualify for a chapter 13, your debts must not exceed the chapter 13 debt limits. If they do, you are still able to file a chapter 11 bankruptcy.
Means Test and Commitment Period
You do not have to take the means test to qualify for a chapter 13 bankruptcy, but the means test is used to determine how long your payment plan will be. Depending on your income, your payment plan can be 3-5 years.
The Automatic Stay
One of the most important benefits to filing a chapter 13 is that once your case has been filed with the court, an automatic stay goes into place under 11 U.S.C. § 362 which stops all collection activity, including calls, letters, garnishments, foreclosures, and any other collection activity. The automatic stay gives you the protection you need to reorganize your debts.
The Chapter 13 Trustee
In every Chapter 13 case, the U.S. Department Justice, Office of the United States Trustee, appoints a court officer called a Chapter 13 trustee to administer your chapter 13 case. The chapter 13 accepts and distributes the plan payments, and ensures that the bankruptcy and chapter 13 plan are feasible.
The 341 Meeting of Creditors
30-45 days after your case has been filed, the clerk of the court schedules what’s called a 341 meeting of creditors. Although this is an opportunity for creditors to ask you questions, creditors rarely come to the 341 meeting. The 341 meeting has morphed into the opportunity for the chapter 13 trustee to ask you some questions about your case under oath. In Maryland, these meetings typically last 10-15 minutes and are very routine.
Confirmation Hearing
In every chapter 13 case, in order for the chapter 13 plan to have effect, it has to be confirmed by the court. In order to have the court confirm a plan, all objections must typically be resolved before confirmation, and your plan must pay back all required claims as stated in your plan.
Modification of Plan
A lot can happen in 3-5 years, and there are circumstances in which the court can modify your plan to account for unexpected life events. If you need a new car, the plan can be modified to allow you to purchase a new car. If you are out of work for a few months, the plan can be modified to lower your payment for those few months. It is important to inform your attorney about any unusual circumstances that happen during your chapter 13 plan.
Financial Management Course
After your case is filed, you must take an additional course mandated by BAPCA called the financial management course. Similar to the credit counseling course, this course can be taken online or over the phone. If you do not take this course within the deadline, your case will be closed without a discharge. In order to receive a discharge, you will have to reopen your case and ask the court for an extension to take the financial management course, and upon successful filing the certificate of financial management, the court can enter the discharge in your case.
The Discharge Order and Discharge Injunction
Unlike a chapter 7, you receive your chapter 13 discharge after you complete all of your chapter 13 payments. The discharge eliminates the balance on the debts owed, and also serves as an injunction.