What is the benefit of Chapter 13?

A Chapter 13 allows a debtor to get a handle on their debts, possibly save a home from foreclosure, and ultimately receive a discharge of debts.

What exactly is a discharge?

A discharge is that which prevents a creditor from attempting to collect on the debt at a future time. It is a bar to collections and a bar to litigation. Essentially, it is complete and final forgiveness of a personal debt.

How often can one get a discharge?

If you received a discharge via Chapter 7 in the past, you must wait eight years before receiving a discharge through Chapter 7 again. If you received a discharge through Chapter 13, you must wait six years.

Do I Have to Qualify to File Chapter 13?

In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act to steer debtors away from Chapter 7 and more toward Chapter 13. Accordingly, the only real limitation on qualifying for Chapter 13 is the size of your debt. You will not qualify for Chapter 13 if your unsecured debt exceeds $360,475 and your secured debts are in excess of $1,081,400. Few people owe greater than these amounts.

What is a secured debt?

A secured debt is that which is subject to a lien or automatic seizure action. A mortgage is the simplest example. A car is another illustration. If you fail to make a payment, is a creditor empowered to take the property back (foreclose, repossess)? If the answer is yes, the property is secured.

What is unsecured debt?

Unsecured debt is that which is not subject to a creditor’s lawful seizure of property under your control which you have missed payments on. The best examples are credit card debt, medical bills, or personal loans. Beware the “purchase money security interest,” however.

What is Purchase Money Security Interest?

This is a secured interest you may not realize is applicable to your personal property. It is best seen through illustration. For instance, when you buy a big ticket item from a major retailer – such as a large high-definition television – and you pay for it via credit card, failing to pay on the credit card can permit the television retailer or credit card company to seize the property. You may not have noticed, but if you examine the receipt from a major retailer given to you when you buy a big ticket item, it will be longer and more detailed than the receipt you might get when you buy just a DVD from the same store. No purchase money security interest can be created out of whim, however; it must be revealed to you at the time of purchase. This will allow you the option to not purchase the product. In a bankruptcy setting, where purchase money secured interest are concerned, you will be given the option of returning the property, reaffirming the debt, or buying it for a reduced lump sum (called “redemption”).

What is the 341(a) Hearing?

The 341(a) Hearing is the name given to the mandatory hearing which takes place pursuant to the law codified within Title 11 of the United States Code, Section 341. The hearing is intended to confirm your identity and that everything you own is contained within your bankruptcy petition. It is also an invitation to your creditors to come and ask you questions about your assets or the debt you owe them. Very rarely does a creditor show up at the hearing, however. The hearing is also a place for the trustee to inquire about the appropriateness of the repayment plan proposed in your filing.

Where does the 341(a) Hearing take place?

The hearing takes place in an office building. It does not take place in a courtroom. You might be required to appear before the judge to confirm the Chapter 13 plan, but this is not always required. If it is required, it will probably be little more than a brief appearance for the purpose of rubber stamping the repayment plan.

What if I forgot to include something in my petition?

You are entitled to amend your petition if you remember something you did not originally include in your petition. The most important goal of the paperwork you file is to have it reflect the truth. So, while you should do your petition correctly the first time, the law recognizes that things may be forgotten and it allows you the chance to fix it.

How much is the filing fee?

The courts must charge a $235 case filing fee and a $39 miscellaneous administrative fee.

How does a Chapter 13 case go?

A petition is filed. This petition lists your assets and debts and includes your proposed repayment plan. When you file, an “automatic stay” is created by operation of law which prevents any creditor from taking any action to collect on the debt during the period of this automatic stay. The stay will remain in effect for the period the case is pending and during your repayment period of up to five years. You must make your initial repayment within thirty days of filing your plan. About a month after you file, the 341(a) Hearing takes place. This will allow the trustee to inquire about the facts contained in your petition and discuss the appropriateness of the proposed repayment plan. The plan will ultimately become recommended for approval by the trustee and a court hearing will be scheduled. The judge will presumably follow the recommendation of the trustee and approve the plan. The plan then goes into effect and you will make payments on it for up to five years. At the end of the five years, any unsecured debt will be discharged.

How is my repayment amount determined?

The goal of the legislation is to have you pay everything you can toward repaying your creditors. Therefore, you list your income and deduct from it your presumed costs of living. Not everything is allowed as a cost of living, however. For instance, saving for a trip to Maui is not an acceptable set-aside. Eating is, of course. The means test found in Chapter 7 is a guide for how much is appropriate, as is the net value of the amount listed in Schedule J subtracted from the amount listed in Schedule I. Unfortunately, no easy answer can be given due to the intricate, fact-specific requirement of plan construction.