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.
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