Chapter 13 Bankruptcy

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Florida Chapter 13 Basics

Chapter 13 bankruptcy essentially is a court supervised payment plan whereby you pay your unsecured creditors what you can afford to pay based upon your family income and your reasonable family expenses. Chapter 13 bankruptcy has two basic requirements: first, you must pay through your Chapter 13 bankruptcy plan to your unsecured creditors all of your disposable family income until your creditors are paid in full or for five years, whichever comes first, and second, you must pay your unsecured creditors at least as much as they would receive from your non-exempt property if you filed a Chapter 7 bankruptcy.

Chapter 13 has certain advantages over a Chapter 7 bankruptcy. For example, Chapter 13 bankruptcy permits debtors to modify or eliminate some secured debts. Specifically, Chapter 13 will stop a foreclosure so that you can catch up past due mortgage payments. Unsecured second mortgage liens can be eliminated through a successful Chapter 13. Also, Chapter 13 permits discharge of some unsecured debts not dischargeable in a Chapter 7.

You can file Chapter 13 in Florida bankruptcy court only if you otherwise qualify to file bankruptcy in Florida. Chapter 13 has debt limits of $360,475 for unsecured debts and $1,081.400 for secured debts. Unsecured debts include personal loans, medical bills, and credit cards issued by banks (such as Visa, MasterCard, American Express, or Discover) and other credit cards used to purchase consumable items such as clothing, food, vacations, etc. Secured debts include those debts where the creditor has a security interest in your property to guarantee payment. Examples of secured debts include mortgages, car loan, loans from finance companies (usually secured by household items), furniture, computers or electronics. If you purchased store goods using a store credit card, such as a card from Rooms to Go, Best Buy, etc., the store probably has a security interest in certain items purchased, which makes the store a secured creditor.

Chapter 13 Bankruptcy Procedures

The Automatic Stay/Suggestion of Bankruptcy. The automatic stay commences immediately upon the filing of the Chapter 13 bankruptcy petition. The stay acts like a shield between you and your creditors during the Chapter 13 bankruptcy. The stay prohibits the commencement or continuation of creditors’ judicial proceedings against you as well as all collection efforts. The Court will not lift the stay if you are a defendant in a foreclosure and are making mortgage payments through your Chapter 13 Plan.

If you are surrendering the property, the lender may be able to have the stay lifted so it can proceed with foreclosure. Chapter 13 bankruptcy permits you to stop foreclosure to catch up on past due mortgage payments. The court will not lift the stay if you are using Chapter 13 bankruptcy to reinstate a mortgage or to strip off a second mortgage.

Your bankruptcy attorney needs to file a Suggestion of Bankruptcy in pending civil cases, so it is important that you provide your bankruptcy attorney a copy of foreclosure papers and any other lawsuits you have received. Also provide the name and address of the creditor’s attorney. The bankruptcy attorney’s filing of a Suggestion of Bankruptcy does not mean that your bankruptcy attorney represents you in that case.

Motion for Relief From Stay is a Motion filed by secured creditors who want to pursue foreclosure of a delinquent secured loan. These Motions are not typically filed in Chapter 13 cases because secured creditors are paid through the Plan. In the event a secured creditor does file a Motion for Relief From Stay these Motions are typically denied as long as the creditor is adequately provided for in the Plan and as long as your payments under the Plan are current.

Handling Your Creditors After Filing. The Court mails the “341 Notice” to your creditors approximately one week after the petition is filed at the address you provided. If a creditor contacts you after you have received the 341 notice, advise them that you have filed bankruptcy, give them your case number. Ask that they no longer contact you as is stated in the 341 Notice. If you receive any bills after filing, you should mail a copy of the 341 Notice to the creditor with the bill.

If a creditor continues to call you or write to you after you have advised them of your Chapter 13 bankruptcy case number and filing date, make a record of the creditor’s contact. Keep a log of unauthorized creditor contacts after your Chapter 13 bankruptcy filing. If you have a written log or other evidence that a particular creditor has contacted you repeatedly, you should call your bankruptcy attorney.

Role of Trustee: The role of the Chapter 13 trustee is different from that of a Chapter 7 trustee. In Chapter 7, the trustee’s job is to find and assemble the debtor’s non-exempt assets which become part of the Chapter 7 bankruptcy estate. The Chapter 7 trustee also may object to the debtor’s claimed exemption of assets. In Chapter 13, the trustees primary role is to supervise the debtor’s preparation and approval of his Chapter 13 plan . After a bankruptcy plan is approved by the court the Chapter 13 trustee collects the debtor’s plan payments and distributes the money among the debtor’s creditor pursuant to the terms of the approved bankruptcy plan.

Chapter 13 and Secured Debts. The Chapter 13 bankruptcy petition requires a list of your secured debts separately from unsecured debts. Secured debts will be paid through your Chapter 13 Plan unless you surrender the secured asset. You must provide your bankruptcy attorney complete information about your secured debts including each creditor’s name and address. In a Chapter 13, you have the option to surrender collateral (such as a house or car) securing a secured loan. You may be able to pay some secured debts outside the plan if (a) the account is current and (b) the debt is paid by automatic deduction initiated by the creditor (not through bill pay) and has been paid that way for at least six (6) months.

Federal Income Taxes. Some federal income taxes are discharge able in Chapter 13. A discussion of income taxes and bankruptcy is found elsewhere on this website. Income taxes that are not dischargeable in Chapter 13 are considered a priority debt and must be paid in full during your Chapter 13 bankruptcy. One advantage of filing Chapter 13 bankruptcy is that income taxes owed the IRS can be paid without further penalty or interest which would otherwise accrue outside bankruptcy. Your bankruptcy attorney may not practice tax law. If you are unsure when certain income taxes were due and payable you must contact the IRS, your tax advisor, or a tax attorney.

Tax Returns & Refunds. In a Chapter 13 bankruptcy, you must timely file all income tax returns due before and after the filing date. Failure to file any tax return is grounds for dismissal. If you need an extension of time, your attorney must file a motion and submit an order to the Court before the date the tax return is due (usually April 15). Income tax refunds are assets and must be surrendered to the Chapter 13 trustee during your Chapter 13 plan. The Chapter 13 may permit you retain a tax refund if you can demonstrate a need, such as a required medical procedure, paying property taxes, unexpected home or vehicle repairs, etc. Before applying to keep your refund, you must provide the Chapter 13 trustee with a copy of your tax return, the tax refund check, and a request form (available from your attorney).

New Debts. Chapter 13 Debtors may not incur any new debt after filing the bankruptcy Petition, including federal income taxes and property taxes, which must be paid when due. If you must incur debt to buy something, such as a replacement car, you must ask the Trustee for permission in advance. Usually, the Trustee will approve new cars so long as the car payment is not greater than the payments on your old car.

Interest Rate On Car Loan. Chapter 13 bankruptcy may permit you to lower the interest rate on your car loan to current market rate. You can object to a claim filed by your car lender if the claim includes an interest rate above the applicable market rate.

Bankruptcy and Employment. It is illegal for your current employer to discriminate against you in any way because you have filed bankruptcy. A private employer may refuse legally to hire people who have filed bankruptcy. Government employers may not discriminate against bankruptcy debtors in hiring.

If you want to read more information about Chapter 13 bankruptcy including many stories about actual Chapter 13 clients and their particular issues and experiences, read my Orlando Bankruptcy Law Blog

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Jon Alper

About Jon Alper

Jon is an attorney focusing on bankruptcy and asset protection in Orlando, Florida.