What Everyone Should Know About Chapter 13 Bankruptcy

In 2005, Congress rewrote bankruptcy laws, steering more consumers to Chapter 13 bankruptcy filings, which require repayment of some debts, rather than a full discharge. Additional steps for the consumer are now in place, and the cost of attorney representation rose due to the new requirements. Congress also set time limit restrictions which impact consumers who may find the need to file for bankruptcy a second time.

As with all debt issues, failure to address the underlying problem, in conjunction with the bankruptcy filing, it is likely that money problems will persist. Chapter 13 begins with mandatory credit counseling, in an effort to educate consumers and give them money management tools needed to prevent a reoccurrence.

Credit Counseling

Consumers must complete a required credit counseling course by an approved agency before filing for Chapter 13. The agency will grant a certificate of completion at the end of the course and discuss an individualized repayment plan, also required by the courts. Consumers are not required to agree with or sign the proposed repayment plan, but the form must be submitted to the bankruptcy court when filing the petition. The purpose of taking the class is to determine if a different course of action would be better suited to the financial situation. To find out who the approved credit counseling agency in the local district, contact the bankruptcy court.

Items Required When Filing for Chapter 13

To file consumers must bring the certificate of completion from the credit counseling agency and a copy of the repayment plan.

The bankruptcy petition.

A list of assets and liabilities including statements from retirement accounts and qualified education or tuition accounts, also known as a 529 plan, including any interest accrued. A complete list of your property is also required.

Proof of income for the previous 60 days, along with a statement of net monthly income from all sources along with any anticipated increase in income or expenses after filing. Courts also require the name and address of all employers, the amount, and frequency of pay.

Tax returns for the previous year, unfiled taxes for prior years, as well as updated copies of any filings while the case is open. A couple may file a joint or an individual petition regardless of how they file taxes.

An accounting of all monthly obligations, including a compiled list of all creditors, the amount owed and nature of the claims, and complete and accurate addresses. A detailed list of monthly living expenses includes costs for food, clothing, housing costs, utilities, taxes, transportation, medical costs and so forth.

The statement of financial affairs. In December of 2015, the accepted form changed to Form B 107.

Copies of all executory contracts and unexpired leases. An “executory contract” is a signed agreement between two participants where the act of the agreement is not currently fulfilled by one or both of the parties. An “unexpired lease” means that the time period for that contract has not yet run out. Here is a general list of items that will fall under this heading; agreements for boat docking privileges, business contracts, business leases or residential rental agreements, automobile leases, contracts of sale for real estate, copyright and patent license agreements, homeowners’ association fees, insurance contracts, leases of real estate (surface and underground) for the purpose of harvesting natural resources, personal property leases, such as equipment used in generating an income, service contracts, and time-share contracts are just a sampling of what could fall into this list.

Required financial information gives the court-appointed trustee a complete and accurate picture of the financial affairs so they can make recommendations to the judge regarding the consumer’s ability to pay the outstanding debts.

Filing Fees and The Bankruptcy Trustee

The Federal Government sets administrative and filing fees. For those filing Chapter 13, the bankruptcy court charges a $150 filing fee and a $39 miscellaneous administrative fee but does not include attorney fees. The filer will typically pay all fees at the time of filing. However, a judge may divide payments into four installments with the last payment no later than 120 days from the date of filing. Joint petitions only require one filing fee and one administrative fee. Failure to pay court fees on time may result in a case dismissal.

The appointed trustee oversees and administers the case by initially evaluating the financial status of the filer and then collecting and distributing payments to creditors.

Advantages of A Chapter 13

The creditor’s stay stops all collection activity including filed lawsuits once creditors receive the notice of filing. The stay is not permanent and will remain in place until the courts decide on a repayment agreement. As long as a stay is in effect, creditors must halt wage garnishments, foreclosure actions, and collection attempts. In the case of a foreclosure, failure to make regular payments will not stop the lender from securing a judgment.

Chapter 13 also contains an automatic stay that protects a co-signer. A creditor may not seek to collect a “consumer debt” from a shared liability such as a joint account. Consumer debts are considered to be personal, family, or household debts.

Repayment Arrangements

The repayment plan begins with the creditors’ meeting, held between 20 and 50 days after filing, and mandatory for the filer. Creditors may ask questions and receive clarification about the consumer’s financial well-being before finalizing a repayment plan. The bankruptcy judge will not be in attendance to preserve their impartiality. Typically, parties use this meeting to resolve problems with the repayment plan.

After the meeting, unsecured creditors can petition the court to receive its share of the monetary distribution by filing claims within 90 days of the meeting. A government entity has 180 days to file a proof of claim.

Repayment Plan Hearing occurs after the meeting of creditors and repayment begins after the judge’s approval of the plan.

Before Discharge

Filers must complete a mandatory debtor education course before receiving a discharge. The class focuses on responsible financial behaviors caused by mistakes leading to the bankruptcy. The education is meant to help consumers understand past mistakes and to provide tools for modified spending habits.

The Aftermath

Repayment plans last between 36 and 60 months, during which time the court discourages any new debts. Securing a new loan typically requires court approval. There can be difficulty in acquiring new debts because the courts basically own your income. Spending money on unapproved expenses could lead to a case dismissal. Some additional debts such as unexpected medical bills may be added to the plan after it is initiated by amending the approved plan.

Court regulated Chapter 13 is an arduous process that negotiates all open unsecured debts and establishes a repayment plan based on current income and financial circumstances. During the repayment period, the courts maintain a great deal of control over your budget. At the end of the repayment plan, any additional balances are discharged, alleviating you from the legal obligation of repayment.