BASICS - Chapter 13

Introduction

The following is basic information about Chapter 13 bankruptcy and the course of events you will experience. If you cannot find the answer to your question in the information below, you should direct your individual question to your bankruptcy attorney.  This website information does not replace or modify any separate written agreement with or written information provided to clients of Jonathan Alper, PLC.  The information provided is based on Chapter 13 bankruptcies filed in the Middle District - Orlando Division only.

Basic Terminology And Chapter 13 Debt Limits

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. You may not file Chapter 13 if your unsecured debts exceed $360,475.

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. You may not file Chapter 13 if your secured debts exceed $1,081,400.

Attorneys Fees: Chapter 13 bankruptcy is more difficult than Chapter 7 bankruptcy. Attorneys fees are much higher for Chapter 13. Most bankruptcy courts regulate Chapter 13 attorney fees. Part of your attorneys fees may be paid through your Chapter 13 plan. See the discussion of bankruptcy Attorneys Fees elsewhere on this website.

Procedure Before Filing

Handling Creditors Before Filing: If a creditor calls you after your initial appointment and payment of your retainer, tell the creditor that you have retained an attorney to file bankruptcy and give them your bankruptcy attorney's name and phone number.

Debtors usually file a Chapter 13 bankruptcy to stop a foreclosure action on real property. It is important that you keep your bankruptcy attorney advised of any scheduled foreclosure sale dates. If your Bankruptcy Petition is not filed with the Court prior to the foreclosure sale, it is then too late to save your home through a Chapter 13 bankruptcy.

General Guidelines In Completing Your Bankruptcy Questionnaire.

Bankruptcy Questionnaire. The bankruptcy schedules that your attorney will prepare for you are based upon the information you provide your attorney.  All information you furnish regarding your creditors must be complete and accurate. It is your responsibility to assure the accuracy of that information when you deliver the completed Questionnaire to your bankruptcy attorney. Your creditors who do not receive notice of your bankruptcy because of an incorrect address or account number might not be discharged (the elimination of the debt) and you would still owe them money.

List All Creditors. You are required to list all creditors, including your mortgage company and auto loan or lease company. You may not pick and choose the creditors you list on your bankruptcy schedules and should include creditors who have either written off, charged off, or sold your debt to a collection agency or debt buyer.  You should also provide the name and address of a creditor's representative.

Contingent And Disputed Liabilities. Make certain you provide your attorney information about all liabilities, no matter how remote. List any claim that anyone might have against you even if the claim has not matured yet. If you are a co-debtor on a note, have personally guaranteed corporate or other debt, or are secondarily liable on a mortgage that has been assumed by a purchaser, the debt should be listed along with a brief explanation of the liability. Disputed debts and liabilities should also be listed. If you have ever had a home mortgage that was insured by a governmental agency (such as the VA), be sure to list that agency as a contingent creditor. This should be done even where someone purchased the property and assumed the mortgage, since they might yet default and the VA could decide to pursue a claim against you.

Chapter 13 and Secured Debts. The bankruptcy petition asks you to list 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. 

Chapter 13 and Liquidity.  One of the requirements under Chapter 13 bankruptcy is that your creditors are paid through your Chapter 13 Plan at least as much money they would have received if you filed a Chapter 7 petition. The amount payable to creditors in Chapter 13 depends largely on the value of your assets and your available exemptions. You must pay your unsecured creditors in Chapter 13 at least as much money as these creditors would receive if you liquidated your assets in a Chapter 7 bankruptcy. Therefore, it is important that you accurately list and provide a current fair market value of all of your assets in a Chapter 13 case, even though the purpose of a Chapter 13 is to avoid having you sell any of those assets.

Income and Expenses. In Chapter 13 cases, the income and expense statement should be as accurate as possible because the amount of your net monthly income will determine your ability to make monthly payments to the Chapter 13 Trustee. The law requires that you pay all of your “disposable income” into the Chapter 13 Plan. Disposable income is the amount of income you have at the end of the month after paying reasonable expenses. If you list expenses for luxury items, the Trustee may require that you liquidate these luxury items unless your Plan provides for the repayment in full of all creditors (secured and unsecured). The Trustee requires that you submit your income tax returns for the past three years in order to substantiate your income and to show that all your disposable income is being applied to the repayment of your creditors.  When preparing your budget, you should take into consideration necessary repairs on your home and vehicle, reasonable personal expenses, reasonable expenses for your children and pets, etc. 

Specific Issues in Completing Your Questionnaire

Exempt Personal Property. Under the Florida Constitution you are allowed to exempt and keep in a Chapter 7 liquidation bankruptcy $1000 of personal assets ($2,000 for a joint Petition). 

Valuing Personal Property. The bankruptcy court uses “forced sale” or "yard sale" values (not replacement value) in the valuation of personal assets for the purposes of this exemption limit. 

Verification of Values. Only you know the condition and value of your assets. Therefore, your bankruptcy attorney will rely on values you submit on your Questionnaire, and your attorney will not change your values. The Trustee has the authority to send an appraiser to your house to value your property. If the Trustee orders an appraisal of your assets, the appraiser will contact you to make an appointment to come to your house.

Federal Income Taxes. Income taxes that are not dischargeable are considered a priority debt. Priority debts 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 case, 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. The applicable market rate is 5.25% (2010). You can object to a claim filed by your car lender if the claim includes an interest rate above the applicable market rate.

Separated Spouses Filing Jointly. If you and your spouse are separated and filing jointly, each spouse should complete separate questionnaire sections for Schedule A and B (real and personal property) and Schedules I and J (income and expenses).

Homestead Property Mortgages.  Chapter 13's treatment of mortgages depends upon whether or not the mortgage is on the debtor's principal residence or the mortgage is recorded against an investment property. Chapter 13 will not change the amount owed, interest rate, or other terms of your first mortgage on your homestead. Specifically, if your homestead is worth less than the amount of the first mortgage ("upside downr" or "underwater") the Chapter 13 will not lower your first mortgage balance to the house's current fair market value. If your house has a second mortgage, and the house is upside down as to the first mortgage as shown in an appraisal prepared by a Florida Certified Appraiser, you may be able to strip off the second mortgage (making it an unsecured debt). After you complete your Chapter 13 plan, the bankruptcy discharge will remove the second mortgage as a lien against the house. Understand that you must complete your Chapter 13 plan and obtain a bankruptcy discharge to complete the second mortgage strip.

Non-Homestead Property Mortgages.  You may be able to reduce the first mortgage balance on non-homestead property to the appraised value ("cram down").  This is a somewhat complicated process that requires appraisal of the property by a state certified appraiser and the ability to pay 100% of the crammed down mortgage during your Chapter 13 Plan (usually with a balloon payment obtained through sale or refinance of the property).

After Filing the Petition

Procedure After Filing. When the petition is filed, the Court will issue a Notice of Chapter 13 Bankruptcy Case, Meeting of Creditors, and Deadlines. This Notice will be sent to all creditors and/or their agent or attorney, to you, and to your attorney. The Notice will give the date and time of a meeting with the Chapter 13 Trustee. You should receive this Notice from the bankruptcy court approximately ten (10) days after your petition is filed.

The Automatic Stay/Suggestion of Bankruptcy. The automatic stay commences immediately upon the filing of the bankruptcy petition. It acts like a shield between you and your creditors during the 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.  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 any lawsuits you have received and the name and address of the Creditor’s attorney. You may want to call your bankruptcy attorney's office after you receive your 341 Notice to confirm that a Suggestion has been filed if you do not receive a copy. In most cases, the bankruptcy attorney's filing of a Suggestion of Bankruptcy in your state court case does not mean that your bankruptcy attorney represents you in that case. 

Motion for Relief from Stay. 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, and 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 bankruptcy case number and filing date, make a record of the creditor’s contact including, if possible, the name of the person contacting you, and dates and times of contacts. You may want to keep a log of unauthorized creditor contacts after your bankruptcy filing. If you have a written log or other evidence that a particular creditor has contacted you repeatedly after notification you should call your attorney for assistance.

What is a Trustee and What Does He Do? Laurie K. Weatherford is the standing Chapter 13 Trustee and she and her staff oversee all cases in Orlando bankruptcy court. The Chapter 13 Trustee’s duties include advising and assisting the debtor in formulating an acceptable Plan, collecting your Plan payments, and disbursing some or all of the funds to the creditors. As compensation, the Trustee is entitled to ten percent of all money he receives from the debtor under the Plan. The Trustee fee may be lowered in some cases if necessary to make a plan financiallly feasible. (One way to lower the fee is to have your secured debt payments automatically drafted from your checking account for at least 6 months before you file Chapter13 so those payments can be paid outside the Plan.)

Creditors Meeting with Trustee. A meeting with the Chapter 13 Trustee (“the 341 Meeting”) will be held approximately four weeks after you file your bankruptcy. The meeting is held in a meeting room, not the court room, and the federal bankruptcy judge is prohibited by law from being there. Typically this meeting will last about five minutes.

Who Attends. You are required to attend the 341 Meeting (if filing jointly, both husband and wife must attend). Your attorney will accompany you and represent you at the meeting. As a practical matter very few, if any, creditors attend. The Chapter 13 Trustee, or her attorney, will conduct the meeting.

What Happens at the 341 Meeting. It is normal for you to be nervous about this meeting, but in almost all cases you will find this meeting is not difficult. The Trustee will ask you questions, but she will not interrogate you, cross-examine you, or threaten you. At the meeting, the Trustee will hand you payment envelopes with the Trustee’s mailing address and will confirm the date your first payment is due. The Trustee will also point out if there are any changes that need to be made in your Initial Plan through an Amended Plan. Typically, most clients will have to submit one or more amended Plans after creditors file their claims showing precise amounts owed to them.

What if you cannot attend the meeting? Creditors meetings are scheduled by the Trustee based on the Trustee’s schedule. Your bankruptcy attorney is not able to request a particular meeting date or time. If you are unable to attend the 341 Meeting you should notify your bankruptcy attorney at least one week in advance so your attorney can contact the Trustee for a continuance. The Trustee will schedule a “make-up” meeting approximately two weeks after the first date. If you do not attend the second meeting, the Trustee will move to have your case dismissed.

Bankruptcy Effect Upon Mortgage Modification. The Middle District - Orlando Division has implemented a plan for mortgage modification mediation under HAMP and other programs.  The mediation fee is $385 and is payable to the Trustee at the time the Motion for Mortgage Modification Mediation is filed.  The Mortgage Modification Mediation process is complex and requires a debtor to submit the same information required under the HAMP guidelines. 

If you have already started the mortgage modification process (prior to filing), the government’s HAMP Directives protect bankruptcy debtors. Chapter 13 bankruptcy does not diminish your rights to a HAMP mortgage modification. Borrowers in active Chapter 13 bankruptcy cases must be considered equally for HAMP modification upon request. Borrowers in the midst of a trial modification cannot be denied permanent modification because they file bankruptcy. Payments made to the Chapter 13 trustee count as timely mortgage payments during your trial modification period.

Creditors' Proofs of Claim.  Creditors are given a limited amount of time to submit claims (the "Claims Bar Date" is noted on the 341 Notice).  Your secured creditors almost always file a claim (and if they don't, your attorney may have to file one for them). The creditor’s claim indicates the amount of total debt, including what the creditor believes is the amount of arrearage owed for past due payments. The arrearage amount can include past due interest, costs, and attorneys fees to date of filing. Some, but not all, unsecured creditors will also file claims. Your bankruptcy attorney should send you copies of claims for your review. If you believe that a claim is in error, you should let your attorney know because you have the option of objecting to the amount of any claim filed. After you and your attorney have had a chance to review the claims filed, your attorney will likely prepare an amended Plan which includes the amounts set forth in the filed claims.

Confirmation Hearing. The next step is a confirmation hearing before the Bankruptcy Judge where your Plan will be reviewed, and if acceptable, be confirmed by the Court. If your case is "ready for confirmation", you and your attorney may be excused from the confirmation hearing.  You will have at least 30 days notice of the court date. After your confirmation hearing, if your financial situation should change, you should contact your bankruptcy attorney to discuss whether or not you want to seek a modification of your Plan. Any increase or decrease in your ability to pay may warrant a modification. Modifications can be submitted for approval at any time for the life of your Plan.

The Chapter 13 Plan

The Bankruptcy Plan

The Plan. Within 14 days after filing a Chapter 13 Petition, your bankruptcy attorney will prepare for your review and signature an Initial Chapter 13 Plan which sets forth a plan to pay your creditors on a monthly basis through a single monthly payment to the Chapter 13 Trustee. The Plan and the amount of your monthly payment to the Trustee is based on the income and expenses you provided on Schedules I & J filed with the Court.  The Chapter 13 Plan will include all of your regular monthly payments on secured items plus an amount for attorneys fees, arrearage on each account, trustee’s fees, and administration fees.

Payments Under Your Plan. After your Initial Plan is filed, the Court will issue an Order Establishing Deadline for Making Payments. You must begin making Plan payments on the date set by the Order.  You can anticipate that your first plan payment will be due approximately 30 days after your Initial Plan is filed on either the 14th or 28th of the month.  The trustee does not accept personal checks so you must pay by cashier's checks or money order.  Always include your name and case number on all payments to the trustee to ensure accurate posting to your account and receipt of payment.

Wage Deduction Orders.  Many people prefer to have their payments made through wage deductions at their place of employment. Your employer simply deducts your payment from your paycheck and sends it directly to the trustee. This procedure makes it easier for you to stay current under your Plan and eliminates the cost of postage and purchaseing money orders or cashier's checks. Even if the Court orders your employer to deduct Plan payments and send them to the Trustee for you, are ultimately responsible for making sure all payments are made. If your employer fails to make a Plan payment deduction, you must tell your bankruptcy attorney and immediately send the payment to the Trustee by cashier’s check or money order.

Effect of Non-Payment. If you fail to make any Plan payment to the Trustee on time, the Trustee will file an affidavit of default and serve it upon you. Thereafter, you will have 21 days to make the overdue payment plus the next payment due under your Plan. Therefore, being late will cause you to make a total of two payments within the 21-day grace period in order to save your Chapter 13 bankruptcy.  When a Chapter 13 case is dismissed for non-payment, the Court may enter an order prohibiting you from filing another Chapter 13 case for up to six (6) months. The Trustee may consider a Stipulation of a payment program to make up for the past due amounts over time, provided you pay the current payment and the next payment due under your Plan. If you do not pay the missed payments or enter into a payment program with the Trustee within the 21-day period after the Trustee’s Affidavit of Non-Payment, your Chapter 13 case will be dismissed for non-payments. If you have a valid excuse for non-payment (illness, loss of employment, etc.) the Trustee may agree to a modification of your plan allowing you to miss one to three payments (you can only miss three payments throughout the life of the plan and you must make the missed payments up over the next 12 months). 

Life After Bankruptcy

Bankruptcy and Your Credit Rating. Bankruptcy will appear on your credit report for several years. This does not mean you cannot get credit after you receive your bankruptcy discharge.  Generally, the effect of bankruptcy on your credit is not a bankruptcy issue; it is a banking or credit issue. Most questions concerning reestablishment of credit are best answered by people at banks, credit agencies, or consumer credit services.