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1)
General Chapter 13 Bankruptcy Information.
2) How is the
amount of the plan calculated?
3) How does a Chapter 13 bankruptcy affect my credit?
4) How much
does a Chapter 13 cost to file?
5) Does the
Automatic Stay discussed in the section on Chapter 7 also
apply to Chapter 13?
6) What if I
become unable to make the monthly payments for my Chapter 13
plan?
7) Can a
Chapter 13 later be converted to a Chapter 7?
8) Will a
Chapter 13 allow me to keep my house and my car?
9) What are
the disadvantages to a Chapter 13 versus Chapter 7?
10)
Legal Disclaimer
CHAPTER
13 BANKRUPTCY – Debt Reorganization
Chapter 13, commonly
referred to as "wage earner bankruptcy," is so
called because it is used in situations where someone is
currently working and able to repay some of his or her debts,
but still needs the benefit of a fresh start that bankruptcy
provides.
In a Chapter 13, the
debtor’s attorney designs a plan to repay a portion of the
debts over a 3 to 5 year period, with three years being the
most common. This plan is then presented to the Trustee of the
Bankruptcy Court for approval. The plan also goes out to the
creditors who have the option of objecting to the plan.
Typically, if the Trustee approves the plan, a creditor
objection will not stop the plan from being accepted unless a
creditor can show that there was undisclosed information
regarding the debtor. One requirement of a Chapter 13 plan
that may be objected upon is that unsecured creditors must
receive at least as much under Chapter 13 as they would
receive if the debtor had filed a Chapter 7.
A typical Chapter 13
plan pays a fairly small portion of the unsecured debts and
the debt remaining at the end of the plan is discharged.
Chapter 13 is commonly chosen where the debtor has one or more
secured debts that he or she wants to retain following the
bankruptcy (as discussed below). These debts are paid in full
over the term of the plan.
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How
is the amount of the plan calculated?
This amount is
determined by looking at your monthly income and subtracting
the cost of your necessary living expenses, which includes all
reasonable expenses you incur on a regular basis. What is left
after these living expenses are deducted from your income is
called "disposable income." This amount is paid
through your plan each month to the Trustee, who distributes
the money to your unsecured creditors on a pro rata basis.
There is a requirement in a Chapter 13 plan that the unsecured
creditors must receive at least as much as they would have
under the filing of a Chapter 7. This may mean that you have a
lot of non-exempt assets, you may have to sell non-exempt
assets to fund your Chapter 13 plan. This may mean (but not
necessarily) that you might as well file a Chapter 7.
Remember, however, that whatever unsecured debt remains at the
end of the plan is totally discharged. This example is
illustrative of why a competent professional must be consulted
to go over your options with you.
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How
does a Chapter 13 bankruptcy affect my credit?
Like a Chapter 7
bankruptcy, it will remain on your credit report for up to ten
years. Most clients report that they are able to begin
rebuilding their credit within a short time following their
bankruptcy, even if at a higher interest rate than other
non-bankruptcy borrowers. Potential creditors may take into
consideration that you will be prevented by law from filing
another bankruptcy for at least six years.
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How
much does a Chapter 13 cost to file?
The court filing fee
for a Chapter 13 is $185.00. The legal fees in a Chapter 13
vary widely depending on the number of debts and the
complexity of the plan created. Contact
us to set up your free
bankruptcy consultation which will allow me to gather the
information necessary to quote you a fee for your individual
case. Keep in mind, however, that the attorney’s fees are
typically included within the plan and paid off over the term
of the plan rather than in one lump sum. Being within the
plan, the fees are part of the monthly payment that you are
making to the Trustee anyway.
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Does
the Automatic Stay discussed in the section on Chapter 7 also
apply to Chapter 13?
Yes, the Automatic
Stay applies the same way in a Chapter 13 as it does in a
Chapter 7. Click
here for more information on how the Automatic Stay
operates.
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What
if I become unable to make the monthly payments for my Chapter
13 plan?
It is extremely
important that you only consider Chapter 13 if you have steady
income that will continue for at least the life of the plan.
Failure to make your payments on time will result in your
bankruptcy being dismissed, meaning that you remain totally
liable on all of your debts as if bankruptcy had never even
been filed. I will work with you to develop a plan that works
with your income and current expenses, but you ultimately have
the responsibility for making all payments on time and in
full.
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Can
a Chapter 13 later be converted to a Chapter 7?
Yes. The opposite is
also true – Chapter 7 may be filed and later converted to
Chapter 13. Sometimes this is done in emergency situation
where the automatic stay is needed immediately and there is
not time to adequately analyze the debtor’s situation to
determine which chapter is appropriate. Upon filing, the
automatic stay is invoked, which gives the debtor enough
breathing room to at least sit down with his or her attorney
and determine which course of action is most appropriate.
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Will
a Chapter 13 allow me to keep my house and my car?
As mentioned
previously, one of the primary reasons people choose Chapter
13 is because they have non-exempt assets that they want to
keep after the bankruptcy. With Chapter 13, the secured debts
(such as a house and car) are continued to be paid on and the
unsecured debts (such as credit card bills, utilities,
department store accounts, etc.) are paid off within the plan
for a set period of time and then the remaining debt is
discharged at the end of the plan. To keep your home and car,
you do have to keep paying on them until they are paid off, as
failure to do so will result in the creditor repossessing or
foreclosing on the property.
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What
are the disadvantages to a Chapter 13 versus Chapter 7?
One disadvantage is
that under Chapter 13, you may not incur debt greater than
$250.00 during the term of your plan, usually 3 years, without
the approval of the court. This can sometimes pose
difficulties in a situation, for example, where you need to
get a different car during the plan. Under Chapter 7, on the
other hand, your debts are discharged at the end of the case,
and you begin with a "clean slate," the court not
being involved at all in your post-bankruptcy earning or
spending.
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Legal
Disclaimer
Nothing contained
herein should be construed to constitute advice for your
personal circumstances. Furthermore, this is intended as a
peripheral glance at the various options available, but by no
means is this a comprehensive or exhaustive analysis of the
bankruptcy laws. Whether or not you should file a Chapter 7
bankruptcy, or any bankruptcy, will vary depending on your
personal circumstances and should only be undertaken after
careful consideration and analysis, and after consultation
with an attorney.
This informative
summary may contain information and rules peculiar to the
Northern District of Ohio.
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KICK & GILMAN,
LLC is a federally designated Debt Relief Agency under the
United States Bankruptcy Code.
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