Some of the specific information provided herein applies to Chapter 13 bankruptcy filing in the Middle District of Florida, Orlando Division.
Chapter 13 bankruptcy, often referred to as a “wage earner” bankruptcy, is a court-supervised payment plan where you pay your secured and unsecured creditors monthly based upon your income and reasonable expenses. To qualify, you must have sufficient income to make payments to your secured creditors (including paying any past due payments). You are required to pay all of your disposable family income into the plan until your creditors are paid in full or for five years, whichever comes first, and 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. Totally 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 are a Florida resident with sufficient income to support a successful Chapter 13 Plan. Chapter 13 has debt limits of $383,175 for unsecured debts and $1,149,525 for secured debts (these debt ceilings are increased from time to time). 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 (mortgages, car loans, furniture, electronics, etc.).
Chapter 13 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 trustee’s primary role is the approval of the Chapter 13 plan. The Chapter 13 trustee collects the debtor’s plan payments and distributes the money among the debtor’s creditors pursuant to the terms of the approved Chapter 13 plan.
In the Orlando bankruptcy court, Laurie K. Weatherford is the standing Chapter 13 trustee. She and her staff oversee all Orlando Chapter 13 cases. As compensation, the trustee is entitled to 10 percent of all money she receives from the debtor under the plan. The trustee fee may be lowered in some cases if necessary to make a plan financially feasible.
You are required to attend a meeting with the Chapter 13 trustee or her attorney (the “341 meeting” or “creditors meeting”) approximately four weeks after your case is filed. The meeting is held in a meeting room – not a courtroom – and the federal bankruptcy judge is prohibited by law from being there. Typically this meeting will last about five to ten minutes. Your bankruptcy attorney will accompany you and represent you at the meeting. Creditors rarely attend.
At the creditors meeting, the Chapter 13 trustee or her attorney will ask you questions, but they will not interrogate you, cross-examine you, or threaten you. The trustee may hand you payment envelopes with the trustee’s mailing address for future payments (in most cases, your first plan payment will be due prior to the creditors meeting). The trustee may point out any changes that need to be made in your initial Chapter 13 plan. Typically, most clients have to submit one or more amended plans as creditors file their claims showing precise amounts owed.
Creditors meetings are scheduled 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 meeting, you should immediately notify your bankruptcy attorney so a continuance can be requested. The trustee will schedule the continued meeting approximately two weeks after the initial date. If you do not attend the second meeting, the trustee may have your case dismissed.
Plan & Payments
No later than 14 days after filing a Chapter 13 petition, your bankruptcy attorney is required to file 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 (Income) and Schedule J (Expenses) filed with the Court. The Chapter 13 plan will include all of your regular monthly payments on secured items (and past due mortgage payments) plus an amount for attorneys fees, trustee’s fees, and administration fees. Your first plan payment is due 30 days after your case is filed (usually prior to the 341 meeting). You do not pay the trustee directly – payments are to be mailed to the trustee or can be paid through the trustee’s authorized online payment processor (Nationwide TFS Bill Pay). The trustee does not accept personal checks, so you must pay by cashier’s check or money order. You can also pay by a voluntary wage deduction order.
Chapter 13 Bankruptcy Procedures
The automatic stay commences immediately upon the filing of the Chapter 13 bankruptcy petition. The stay acts as a shield between you and your creditors during the Chapter 13 bankruptcy and prohibits the commencement or continuation of a creditor’s judicial proceeding against you as well as all collection efforts. The bankruptcy judge will not lift the stay if you are a defendant in a foreclosure proceeding as long as you are making mortgage payments through your Chapter 13 plan. The filing of a Chapter 13 bankruptcy stops foreclosure proceedings so you can catch up on past due mortgage payments. If you are surrendering a property, the lender will usually have the stay lifted so it can proceed with foreclosure.
You or your bankruptcy attorney should file a suggestion of bankruptcy in any pending civil cases. 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.
Your Creditors After Filing
The Court mails the “341 Notice” to you and your creditors approximately one week after your bankruptcy has been filed. If a creditor contacts you after you have received the 341 notice, advise them that you have filed a Chapter 13 bankruptcy, give them your case number and filing date, and ask that they no longer contact you. If you receive any bills or statements from a creditor after your case is filed, you should mail a copy of the 341 Notice to the creditor with a copy of 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.
All secured debts will be paid through your Chapter 13 Plan unless you surrender the secured asset. In Chapter 13, you may 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 prior to filing. You may be able to lower the interest rate on a car loan to the 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.
Federal Income Taxes
Some federal income taxes are dischargeable 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. If you are unsure when certain income taxes were due and payable you must contact the IRS, your tax advisor, or a tax attorney.
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 trustee 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 original tax refund check, and a request form (available from your attorney).
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 legally refuse to hire people who have filed bankruptcy. Government employers may not discriminate against bankruptcy debtors in hiring.
The Plan. In most cases, the initial Chapter 13 Plan is filed with your bankruptcy petition and schedules. At the latest, your initial Chapter 13 plan must be filed within 14 days after filing a Chapter 13 petition. The Initial Chapter 13 plan 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 (Income) and Schedule J (Expenses) 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, past-due secured payments, trustee’s fees, and administration fees. Your first plan payment will be due 30 days after your petition is filed with the bankruptcy court.
Chapter 13 and Liquidity. The Chapter 13 bankruptcy plan requires that your unsecured creditors are to be 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. 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 to sell any of those assets.
Income and Expenses. Bankruptcy law requires that you pay all of your “disposable income” into the Chapter 13 plan. Disposable income is the amount you have at the end of the month after paying reasonable living expenses and expenses for anticipated vehicle or home repairs, medical, entertainment, etc. 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. Your statement of income and expense should be as accurate as possible because the amount of your net monthly income determines your plan payments to the Chapter 13 trustee. 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).
Wage Deduction Orders. Many debtors prefer to have their payments made through a voluntary wage deduction. 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 purchasing 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 plan payments to the trustee as they become due, the trustee will file a Motion to Dismiss for Failure to Maintain Timely Plan Payments. Thereafter, you will have 21 days to make the overdue payment plus the next payment due under your plan. 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. If you do not pay the missed payments or object to the Motion to Dismiss within the 21-day period, your Chapter 13 case will be dismissed for non-payment without hearing or additional notice.
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. In that event, your Chapter 13 plan will be modified and your plan payments will be increased for the next 12 months while you make up the missed payments. If you fail to make any payments during the “make up period”, your case can be dismissed.
Creditors’ Proofs of Claim. Creditors are given a limited amount of time to submit claims (the “Claims Bar Date”). 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 any delinquency for past due payments. The delinquency amount (the “cure” 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.
Modification of the Chapter 13 Plan. After your Chapter 13 plan is confirmed, 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. If you are paying mortgage payments through your Chapter 13 Plan, the lender will file a “Notice of Payment Change” with the court if there is a change in plan payments for any reason (interest rate change or an increase in taxes or insurance payments). If it is necessary to increase your plan payments because of an increase in your mortgage payment, the Chapter 13 trustee’s office will file a Notice of Increase in Plan Payments. In addition, if your tax return indicates an increase in gross income from the previous year, the trustee may file a Motion to Modify Plan Payments to increase your payments so that you are paying 100 percent of your disposable income into the plan.
Treatment of mortgages in Chapter 13 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 automatically change the amount owed, interest rate, or other terms of your first mortgage on your homestead or other real property. Specifically, if your homestead or other real property is worth less than the amount of the first mortgage (“upside down” or “underwater”), Chapter 13 does not automatically lower your mortgage balance to the property’s current fair market value.
Many Florida bankruptcy courts have implemented a program whereby debtor homeowners and real property owners may address mortgage modification in a court supervised mediation program. Mortgage modification mediation in bankruptcy gives the property owner/Chapter 13 debtor the opportunity to discuss mortgage modification directly with lender’s underwriters with the help of a third-party professional mediator. Most mortgage mediation results in an offer to modify the debtor’s homestead mortgage. Mortgage modification mediation is only available in Chapter 13 bankruptcy.
Chapter 13 bankruptcy does not diminish your rights to HAMP mortgage modification if you have started a modification program before filing bankruptcy. Borrowers in the midst of a trial modification cannot be denied permanent modification because they filed bankruptcy. Payments made to the Chapter 13 trustee count as timely mortgage payments during your trial modification period.
Even if your first mortgage is not modified in a Chapter 13 bankruptcy, the bankruptcy filing can help you save a home from foreclosure. Filing a Chapter 13 bankruptcy will stay any foreclosure proceedings. A debtor who is past due on mortgage payments, insurance, and taxes can use a Chapter 13 to catch up past due payments until the mortgage becomes current. Mortgage delinquency at the time of filing can be paid without interest in periodic payments during the Chapter 13 plan.
There is an additional benefit in Chapter 13 for people with second mortgages on their primary residence. 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). The bankruptcy discharge will remove the second mortgage as a lien against the house after you complete your Chapter 13 plan. If you fail to complete your Chapter 13 plan and receive a discharge, the second mortgage debt will still be owed as a secured debt.
As stated above, Chapter 13 does not force a reduction in your first mortgage on your primary residence; however, you may be able to reduce the first mortgage balance on non‑homestead property to the property’s current appraised value (a “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 percent of the crammed down mortgage balance during your Chapter 13 Plan (usually with a balloon payment due in the 24th month of your plan). You would have to either sell or refinance the property to make the balloon payment.