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Chapter 13 Bankruptcy Page 1
Such crushing debt leads to far more than an inability to pay the bills. The
stress of such overwhelming debt can lead to health issues, difficulties at
work and at home. It can even lead to an onset of depression.
In 2009 there were over 370,000 chapter 13 bankruptcy filings in the United
States.
This guide is not, and cannot be, an exhaustive guide to every nuance of
the legal system, civil procedure and every possible eventuality you might
experience when being sued or when trying to sue someone. For that level
of guidance, you should hire an attorney. However, after reading this guide,
you should find that guidance more productive and useful than if you didn’t
have a basic understanding of the processes involved.
Read on and if you feel that you’re ready to pursue filing chapter 7
bankruptcy protection, call us to set up a free consultation with one of our
bankruptcy specialists.
It differs from Chapter 7 in that it requires a 5 year payment plan for some
or all debt to be approved by the court and carried out successfully before
any remaining debt is discharged.
Chapter 13 is for those with less than $336,900 in unsecured debt and/or
less than $1,010,650 in secured debt. If you owe more than these amounts,
you should look into chapter 11 with your attorney.
At the end of the plan period, the remaining debt is discharged, excluding
such debts which are undischargable by bankruptcy.
How is the plan of reorganization created and approved?
With the aid of your attorney, you will create a repayment plan that applies
your disposable income to the payment of your debts over what is typically
a five year period. This plan is reviewed by the bankruptcy court, along with
your creditors, and is approved by a judge.
For example, if you were making $6,000 a month for the first three months
of the examined period and then $4,000 a month for the last three months,
your average income is calculated at $5,000 a month. If the court trustee
then forces you to devise a payment plan based on an income $1,000
greater than what you currently receive, you can imagine that it’s going to
be difficult to make the required monthly payments.
Some courts try to take ―current reality‖ into consideration when making the
calculations for the disposable income to be applied to the payment of your
debts during your case. Even though the new bankruptcy laws seem to
have been designed to put you on the defensive, the intent of bankruptcy—
as established by the powers granted in the Constitution—is to help
citizens get a fresh start from the effects of overwhelming debt and
eliminate the days of debtor’s prisons from the days of Charles Dickens.
Chapter 13 doesn’t offer much of a solution if the plan you’re forced to
accept fails in the first month because your real income can’t support it.
Chapter 7 is the most common form of bankruptcy but due to new laws
passed in 2005, it is difficult for many to qualify for chapter 7. To qualify for
chapter 7 you must pass a means test which shows a very low income or
no income. Because of this, most with regular incomes and sizeable assets
must use chapter 13 for bankruptcy protection.
Chapters 9, 11, 12 and 15 bankruptcy
Chapters 9, 11, 12 and 15 bankruptcy are less common as they deal with
more specific groups of people.
Other collection attempts are also frozen by the automatic stay. The calls,
the letters, pending lawsuits and attempts to seize assets and freeze bank
accounts are all held up by the automatic stay.
What is creditor preferencing?
When filing for bankruptcy, your past financial transactions will be
examined. If you have made any large payments to creditors in the past 90
days—defined as being great than $600—that payment may be
retroactively cancelled by the courts. This is intended to ensure that no
preference is made to pay one creditor and not another.
How are payments made?
The trustee assigned to your bankruptcy will receive your monthly payment
and the distribute payments to creditors according to the court approved
plan.
The trustee is paid from a portion of your monthly payment so you can be
sure that he or she will not only examine your plan thoroughly, but he or
she also has a vested interest in the successful execution of your plan.
While you may at times feel that the court trustee is your adversary, it’s in
your best interests to work closely with him or her and to maintain open and
transparent communications.
What happens if I stop making payments?
If you stop making the required payments to the trustee your case will
probably be dismissed and the automatic stay will be lifted. After this
happens, creditors may once again pursue you directly for repayment of
debts.
What happens if my income increases during my chapter 13 case?
During the entirety of your chapter 13 case, the court trustee is in charge of
your finances. The court trustee even monitors your month income and
banking activities.
As all disposable income is allocated for the payment of debt during the
term of your court-approved payment plan, any increase in income is—by
definition—disposable income and will be used to make additional
payments to the creditors.
Increases in income may include a raise at your job, a new client, royalties,
or even winning the lottery. Any such increase in income must be reported
promptly. Do not make any attempts to hide such extra income. If you do
so, and are caught, you could face serious criminal penalties.
What happens if my income decreases during my chapter 13 case?
It seems as though the bankruptcy laws were written with the assumption
that your income will never decrease and you are expected to make the
same income, or better, through the entirety of your chapter 13 case.
Obviously reality does not match this assumption. Many people end up
filing for bankruptcy protection because of a substantial decrease in income
in the first place. If you experience a drop in income during your case,
inform your trustee immediately.
The result may be a modification to your payment plan, based on the newly
calculated disposable income. In the event of a completely loss of income
it's also possible that your bankruptcy will be converted into a chapter 7
filing and the remaining debt will be discharged and your case will be
closed.
What is required of me during my chapter 13 case?
Through the term of your case, you are required to file your income taxes
on time--of course, you should be doing this anyway--and provide a copy of
your filing to the court trustee. Your creditors may also request a copy of
your tax returns each year. If the request is made, you're obligated to
provide them with copies as well.
Each year you will also provide an additional financial statement to the
trustee. This is intended to confirm transparency on your part during the
course of your bankruptcy case. It also provides evidence against you if it's
found that you were hiding income, or assets, to avoid paying your
creditors--so always be accurate and truthful.
Finally, you must make your payments on time, throughout the entirety of
your case.
Taxes due within the last three years or taxes not assessed because
of fraud
Debts not listed on your bankruptcy papers
Debts for domestic support obligations (alimony, child support, etc)
Interest on non-dischargeable debts
Debts for intentional injury
Debts for certain government fines and penalties
Debts for student loans
Debts that were or could have been listed in a prior bankruptcy case
in which you either waived your discharge or your discharge was
denied
Debts owed to a creditor for a total of more than $500 for the
purchase of "luxury goods" 90 days before you filed the petition for
bankruptcy
Cash advances that total more than $750
Debt for personal injury judgments resulting from a DUI-related
accident
HOA fees
Pension, profit-sharing, stock bonus or such other plan payments
If you want to go it alone, the forms are available on the web. The state of
Virginia has placed them online as PDF files which can be filled out through
your computer. You can find the entire list of forms here
http://www.vaeb.uscourts.gov/scripts/formsqry.exe
We recommend a qualified attorney to help you with your case, and not just
because we earn a fee by providing the service. The issues leading to
bankruptcy are very stressful for anyone. With the complexity of the new
laws it’s simply too easy to get lost in the emotion and make a mistake.
That’s what legal representation is for.
Let us help you. Contact us and schedule a meeting with one of our
bankruptcy specialists. We’ll look at your case and make the
recommendation that we feel is in your best interests.