Boca Raton Chapter 13 Attorney

Chapter 13 Bankruptcy

Chapter 13 Bankruptcy is another option for people that have debts that have gotten way out of hand. Chapter 13 is commonly referred to as a "wage earner's plan" because it hinges on the debtor having a source of income and being able to make scheduled payments. This plan allows people to repay all of their debts, whereas Chapter 7 Bankruptcy discharges the debts. In Chapter 13, debtors propose a plan of monthly installments for a period of between 3 and 5 years. The plan may not be longer than 5 years. If a person's monthly income is below the state median, then the period of repayment will be 3 years, unless there is "cause." If a person's monthly income is above the state median then the repayment plan period will be 5 years. During the repayment period, creditors may not start or continue their collection efforts.

Advantages

The advantages of filing for Chapter 13 bankruptcy over Chapter 7 are numerous. For starters, it offers individuals a chance to save their homes from foreclosure. Filing a Chapter 13 petition stops foreclosure proceedings and may cure delinquent mortgage payments, with time. In addition, this form of bankruptcy allows individuals to reschedule secured debts and extend the payments over the life of the chapter 13 plan; however, this can not be applied to the mortgage on a primary residence. Chapter 13 bankruptcy does not protect just the debtor. It also protects third-party co-debtors who are liable with the debtor, such as co-signers on a loan, on "consumer debts". The petition and plan also act as a consolidation loan. The debtor pays money to a trustee who then distributes the funds to the various creditors. The debtor has no contact with creditors while under Chapter 13's protection.

Eligibility

Any individual is eligible for Chapter 13 Bankruptcy as long as the unsecured debts total less than $307,675 and the secured debts are less than $922,975. These numbers are adjusted periodically to reflect changes in the Consumer Price Index. Check with a bankruptcy attorney to find out what the current numbers are and whether or not you are eligible. An individual is not eligible if they have had any other bankruptcy petition dismissed in the past 180 days due to a willful failure to appear before the court, failure to comply with the orders of the court, or voluntary dismissal after creditors sought relief from the court to recover property upon which they held liens. In addition, to be eligible, an individual must have received credit counseling in the 180 days prior to filing for bankruptcy. Group or individual briefings are ok and emergency situations do exist. Corporations or partnerships do not qualify for Chapter 13 bankruptcy, ever.

How it Works

The first step to getting out of debt via a bankruptcy proceeding is to file a petition with a court in the area where the debtor lives or has a property. When the petition is filed, it should include a schedule of assets and liabilities, a schedule of current income and expenditures, a schedule of executor contracts and unexpired leases, and a statement of financial affairs. In addition, the debtor must file a certificate of having received credit counseling including a copy of any debt repayment plan that had been developed during credit counseling; evidence of payment in the last 60 days from any employers; a statement of monthly net income (the amount of money left after all deductions have been taken into account) and any anticipated increase in income or expenses after filing; a record of any interest the debtor has in federal or state qualified education or tuition accounts. Tax returns or copy of tax transcripts from the most recent tax year must be included as well. A married couple may file a joint petition or individually.

All bankruptcy courts must charge a $235 case filing fee as well as a $39 miscellaneous administrative fee. These fees are normally paid to the clerk when the case is filed but they can be paid in installments with the court's permission. If the installment plan is chosen, the maximum number of installments allowed is 4. The last installment must be made no more than 120 days after the initial filing date. Fortunately, like almost every other aspect of Chapter 13 bankruptcy, the court can extend the amount of time to the last payment, if cause is shown. When the court extends the period of payment, the last installment must be made no more than 180 days from the filing of the petition. It is important to keep in mind that if the fees are not paid, then the case can be dismissed. If a joint petition is filed, then only one set of fees is due.

As in everything else, there is a set of forms that must be completed for things to progress as they should. To complete the official set of forms, there are certain things that must be provided. Among this set of information must be found a list of all creditors and the amounts and nature of their claims; the source, amount and frequency of the debtor's income; a list of the debtor's property; and a detailed list of the debtor's monthly living expenses. The last list includes such things as food, clothing, housing, utilities, taxes, transportation, and so on and so forth. Married individuals must gather the above information for their spouse even if a single joint petition is being filed.

Once the forms are complete, an impartial trustee is appointed to administer the case. In some districts, there is one person that handles all of the bankruptcy cases. This person evaluates the case objectively and serves as a disbursing agent. This individual also has the duty of informing everyone listed on the list of creditors that a bankruptcy petition has been filed.

Twenty to fifty days after the petition is filed the trustee will meet with the creditors. The debtor is required to attend this meeting. During the meeting, the debtor will be placed under oath while the trustee and creditors are given the chance to ask the debtor questions. The bankruptcy judge is not allowed to attend this meeting. This is so that the independent judgment of the judge is not compromised. To avoid a lengthy question session, make sure the petition and plan are complete and accurate. Consulting with the trustee prior to the meeting will help as well.

Chapter 13's Protections

When a Chapter 13 Bankruptcy petition is filed, it acts as an automatic stay. This means it stops collection agents from calling. Because of the nature of the law, no judicial action is needed to stop collectors from calling. It is necessary to keep in mind that this stay is a temporary action. It may only be effective for a short time.

This form of bankruptcy also protects co-debtors. Unless the court explicitly authorizes a creditor, a creditor may not seek to collect a "consumer debt" from any individual who is liable along with the debtor. This co-debtor could be a person that co-signs on a car loan. Consumer debts are debts that are incurred by an individual primarily for a personal, family, or household.

Unlike Chapter 7 bankruptcy, Chapter 13 can be used to stop a foreclosure. The above mentioned automatic stay stops the foreclosing proceedings. The individual is then given a chance to bring the past-due payments current over a reasonable period of time. It is important to note that the debtor can still lose the home if the mortgage company completes the foreclosure sale before the debtor files the petition. Also, if the regular mortgage payments that come after filing for bankruptcy are not made then the house is still subject to foreclosure.

The Repayment Plan

The repayment plan must be filed with the petition or within 15 days after the petition is filed. Again, the courts are capable of granting an extension. The plan is submitted for court approval. It includes provisions for payments of fixed amounts to the trustee on a regular basis. These regular payments are generally made bi-weekly or monthly.

There are three types of claims that must be addressed in the plan. Priority claims are claims that have special status such as taxes and the costs of the bankruptcy proceeding. Secured claims are claims where the creditor has the right to take back certain property, known as collateral, if the debtor does not pay. Unsecured claims are claims in which the creditor has no right to seize property in order to pay back the debt. Of the three, only priority claims must be paid in full.

Within 30 days of filing the repayment plan, the debtor must start to make payments to the trustee as laid out in the plan. This is true even if the plan has not been approved by a court yet. Plans may be modified before or after their confirmation. This is useful if a creditor doesn't like the terms of the plan or if a creditor was accidentally left off of the official list.

The debtor is able to make payments through payroll deductions. This is useful as it increases the chances that payments will be made on time.

Discharge

Recently, a lot of the discharge laws have become a lot more complicated so it is important to consult with a bankruptcy attorney concerning discharge. Discharge releases the debtor from all debts provided for by the plan or disallowed. There are some items that are not subject to discharge. These include long-term obligations (like a home mortgage), child support and alimony payments, certain taxes, etc.

Overall, a debtor is entitled to discharge. This, like everything else has conditions. As long as the debtor certifies that all domestic support obligations that came due have been paid; the debtor has not received discharge In a prior bankruptcy case within a certain time frame; and the debtor has completed an approved course in financial management then it is somewhat safe to assume that the debtor is eligible for discharge. Sometimes circumstances come up that prevent the debtor from being able to repay their debts along with the repayment plan. In these cases, hardship discharge is awarded. Hardship discharge can only be applied when the failure to make payments is due to circumstances beyond the debtor's control; creditors have received at least as much as they would have received through a Chapter 7 bankruptcy proceeding; and modification of the plan is not possible.

As with Chapter 7 bankruptcy, credit will need to be restored following the proceedings. That is part of the reason for the mandatory financial management class.

All of the information provided is not meant to be substituted for legal counsel. It is meant to provide information rather than be the sole source of information.

If you have any questions for our South Florida bankruptcy lawyers, don't hesitate calling us at 561-353-2500 or complete the form on the left.

Portions reprinted from the office of the US Department of Justice.