Ch. 13 Bankruptcy Common Questions
Do I qualify for chapter 13 bankruptcy?
Any individual is eligible for as long as the unsecured (not tied to property) are less than $336,900 and secured debts are less than $1,010,650.00.
Are there any restrictions on who may file for a chapter 13 bankruptcy?
Yes. An individual cannot file for bankruptcy if in the previous 180 days a prior bankruptcy petition was dismissed for failure to appear by the debtor, failure to comply with court orders by the debtor, or was voluntarily dismissed.
Can businesses file for Chapter 13 bankruptcy?
No. However an individual who owns a business may file for personal bankruptcy and include business debts that he or she is personally liable for, with a significant exception for stockbrokers and commodity brokers.
Can I keep my house?
Yes, if you can make up any missed payments and remain current on the mortgage throughout the term of the bankruptcy.
Can I keep my car?
Yes, provided you continue to make payments on it, and the lender receives the value of the car in payments over the court of the payment plan.
What property can I keep in a Chapter 13 bankruptcy?
Any property that you wish. Chapter 13 bankruptcy is different from a Chapter 7 because it does not call for liquidation to pay off debts, but requires payments from regular income
What is a lien stripping or cram down?
Lien stripping or cram down results in a secured claim being reduced to the value of the underlying collateral. In a Chapter 13 bankruptcy, liens can be stripped off the debtor's assets when the lien exceeds the value of the property. Take for example a home currently valued at $500,000.00., with a first mortgage of $400,000.00, and a second mortgage of $300,000.00. The first mortgage is secured by $100,000.00 (value of the property minus the lien). The second mortgage is not secured because the property does not have sufficient equity. In this case, the second lender is lien striped and in a Chapter 13 bankruptcy, that lender is treated as an unsecured creditor.
What is a repayment plan in a Chapter 13 bankruptcy?
Filing for bankruptcy under Chapter 13, requires the debtor to come up with a plan for repaying his/her debts. Under the repayment plan, certain debts take priority over other debts. Priority claims such as taxes and costs of the bankruptcy proceeding must be paid in full and come first, secured claims are next in line, and finally unsecured claims. In order to keep the collateral securing the claim (such as a car), the plan must provide the holder of the claim at least the value of the collateral with some exception. Additionally all unsecured creditors must receive as much under the plan as they would have required if the debtor liquidated his/her assets pursuant to a Chapter 7 bankruptcy; and the debtor must pay all of his/her projected disposable income over the period of the repayment plan. Under the repayment plan, the debtor makes a single payment under the plan to the bankruptcy trustee, and the trustee makes distributions to various creditors pursuant to the plan.
What process should I expect when filing a Chapter 13 bankruptcy?
The initial step is to gather all of your income and financial paperwork, including tax returns, pay stubs, bills, etc. You also need to take the pre-filing credit counseling course. Once the petition is filed, and filing fees are paid, the trustee will schedule a meeting of creditors. A meeting of creditors gives creditors the opportunity to question the debtor about the circumstances asserted in their petition, and gives the debtor an opportunity to respond. After the meeting of creditors, a hearing will be scheduled before the judge to determine if the proposed repayment plan is acceptable. Once the plan is confirmed, the trustee will begin disbursing payments. Upon completion of all payments under the plan, a debtor is entitled to a discharge provided they have (1) completed a financial management course; (2) paid all domestic support obligations that came due in the time period, and (3) have not received a discharge in a prior case filed within a certain time frame.
Can I stop a foreclosure if I file Chapter 13 bankruptcy?
Yes. What is known as an automatic stay, or a stop, goes into effect as soon as a petition for bankruptcy is filed. This stay goes into effect by operation of law and not by judicial action. The stay stops a foreclosure proceeding and allows the individual to bring past-due payments current over a period of time. However, if a debtor fails to make payments once the petition is filed, or the mortgage company seeks judicial relief, the property may still be lost.
Can I stop a wage garnishment if I file Chapter 13 bankruptcy?
Yes. What is known as an automatic stay, or a stop, goes into effect as soon as a petition for bankruptcy is filed. This stay goes into effect by operation of law and not by judicial action. The stay means creditors may not initiate or continue lawsuits, wage garnishments or other collections without court permission.
What are the fees to file Chapter 13 bankruptcy?
A debtor must pay an initial filing fee of $235 and an administrative fee $39 upon filing a petition for Chapter 13 bankruptcy.
What is considered secured debt v. unsecured debt and how does it affect my filing for Chapter 13 bankruptcy?
Secured debts are those debts tied to property, such as a home loan or a car loan. This type of loan is secured because the property was offered as collateral. This means the lender has the right to retake the property if the debtor fails to make payments. Unsecured debts are debts not tied to a specific piece of property, such as credit cards, student loans, personal loans or lines of credit not tied to real estate. Different types of debt receive different treatment in bankruptcy. In a chapter 13, if the debtor wishes to keep the collateral, or property, securing a loan, the lender must receive at least the value of the collateral under the payment plan. Unsecured creditors may receive less than the full amount owed under a chapter 13 bankruptcy.
Is any debt non-dischargeable in a chapter 13 bankruptcy?
Yes. Domestic support obligations are not dischargeable, so you cannot discharge spousal or child support obligations. Student loans, in many cases, are not dischargeable. Taxes that are less than a certain number of years old are not dischargeable. Additionally, certain long term obligations such as a home mortgage are not dischargeable if you retain the property. Debts arising from death or personal injury caused by driving under the influence, and debts for restitution or criminal fine included in a sentence on the debtor's conviction of a crime.
What is the credit counseling certificate required prior to filing a Chapter 13 bankruptcy?
Any debtor who wishes to file a bankruptcy petition, regardless of chapter, must take a pre-filing counseling session regarding debt, alternatives to bankruptcy and budgeting. This can be done via phone, in person or online. You will receive a certificate indicating your completion, and you need this to file.
What is a Means Test?
The new bankruptcy law that was effective in 2005 requires a means test in order to determine eligibility for a Chapter 7 or a Chapter 13 bankruptcy. When applying the means test, the courts will take the debtor's average income for the six months prior to filing and compare it to the median average income of the state. If the debtor's income is below the state median, then the debtor is eligible for the Chapter 7 liquidation bankruptcy. If the Debtor(s) average income is above the median income and the Debtor(s) do not have qualified deductions to reduce their income, they may file for bankruptcy under a chapter 13.
What are the pre-discharge requirements in a chapter 13 bankruptcy?
Completion of all payments under the plan, maintenance of current support obligations during the bankruptcy, and of course, the financial management course or 'post-bankruptcy' course.