Chapter 13 Bankruptcy FAQ
Our Chapter 13 bankruptcy attorneys, Kristen L. Krol and Gregory W. Smith have a combined 50 years of experience in analyzing and proposing solutions to individual debt problems. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code. Find some frequently asked questions about Chapter 13 Bankruptcy below:
Chapter 13 is a bankruptcy proceeding that allows you to reorganize your debts and repay all or a portion of your debts over a three to five year time period.
If you file a Chapter 13 Bankruptcy, you will make regular monthly payments to a Trustee. The Trustee uses those payments to pay your debts. Creditors may receive all or a portion of their claims, depending primarily on the payments you can afford to make.
In a typical Chapter 13 Plan, secured creditors (those creditors who have a lien on your property) are entitled to full payment of the fair market value of their collateral, plus interest at a reasonable rate. The remainder of the debt obligation is treated as an unsecured creditor. Unsecured creditors are paid a percentage of the total debt without interest. The percentage may be 100% or as little as 1%, usually dependant upon your income and property.
Once a Plan is completed, the remaining balance of the “unsecured debts” provided for under the Plan is discharged. A discharge extinguishes your legal obligation to pay the debt. Long-term debts, such as a home mortgage, will be “current” and you will continue to make your mortgage payments directly to the mortgage company.
Debt Limits: Any individual or small business proprietor with less than $394,725 unsecured and $1,184,200 secured debts is eligible. There is no minimum amount of debts required to be eligible for a Chapter 13.
Entities: Chapter 13 is available to any individual or small business proprietor (excluding corporations, LLC’s or Partnerships) with regular income. Income may come from a variety of sources including wages, unemployment benefits, social security, pensions or social services benefits.
Reasonable Payments: Payments to the Chapter 13 Trustee are based primarily upon your disposable income after consideration of your reasonable and necessary monthly living expenses. Payments are based on what you can afford to pay, rather than the original payments owed to a creditor. In some cases, the “Means Test” may determine the amounts you pay, and the Length of your plan, which is generally 3-5 years.
Stops Mortgage Foreclosures: If filed before a foreclosure sale occurs, a Chapter 13 will stop foreclosure proceedings and allow you to propose a payment plan to cure the delinquent amount.
Stops Land Contract Foreclosures: If your case is filed prior to a forfeiture judgment, arrearages can be brought current, or cured through your Chapter 13 Plan payments. If a judgment has been obtained, you may be allowed an additional 60 days to satisfy the judgment.
Stops Garnishment: Except for child support or alimony garnishments, Chapter 13 stops garnishments as of the date of the Chapter 13 filing.
Stops Interest on Unsecured Debts: Generally, interest on credit cards, signature loans and any other unsecured debts (those without collateral) stops accruing on the date of the Chapter 13 filing. Other fees that stop immediately include future service charges, late fees, collection charges and attorney fees.
Stops Creditor Harassment: Once you file for Chapter 13 relief, creditors are prohibited from contacting you.
Stops Credit Union Deductions: All credit union deductions to pay pre-petition debts can be stopped upon filing.
Prevents Repossessions: Chapter 13 prevents repossession of collateral, such as automobiles. Under some circumstances, repossessed property can be recovered if the Chapter 13 is filed before the property is sold by the creditor.
Protects Property and Assets: A Chapter 13 Plan is designed to allow you to remain in possession of all of your property. Unless the Plan proposes otherwise, you will keep all savings, home equity, stocks and bonds and personal property.
Protects Co-Signers: Under some circumstances, a Chapter 13 can protect co-signers by restraining the creditor’s collection efforts against them.
Allows Wage Deduction: The payments required under the Chapter 13 Plan can be made by automatic payroll deductions through your employer.
Student Loans: Special rules apply to student loans. Your qualified bankruptcy attorney should evaluate these debts and advise you regarding how they should be treated in your Chapter 13 Plan. At Debt Relief Legal Clinic, we take special care in treating student loans properly in a Chapter 13 Plan, so that any income driven payment plans or the Public Service Loan Forgiveness program are maintained during the plan and not jeopardized. Without special handling, student loans will be placed into a bankruptcy forbearance, interest will accrue and the balances will grow. Without proper treatment, student loans can grow by a third or more their original size prior to filing the bankruptcy.
Income Taxes: Special rules apply to income taxes. Some may be treated as unsecured debt, similar to credit cards and medical bills. Many times, taxes may be non-dischargeable but can be paid without additional penalty or interest from the date of filing the Chapter 13 case.
Attorney Fees: Attorney fees are court controlled. Generally, aside from the initial retainer fee that will be paid prior to filing the case, your remaining attorney fees will be paid through your Chapter 13 Plan, instead of your unsecured debts, from your regular monthly plan payments.
Who Proposes the Plan? The Debtor proposes the plan, which is designed through their attorney.
Credit Record: A Chapter 13 Bankruptcy proceeding will likely be placed on your credit record. The public record of a bankruptcy filing will remain on your credit record for up to 7 years from the date of discharge, which will equate to 10-12 years. While this does not mean you cannot obtain future credit, it is information future creditors may take into account in deciding whether to grant credit. The positive step of filing a Chapter 13 bankruptcy to get your finances in order may also be taken into account by future creditors.
Credit While In Your Plan: Permission must be obtained from the Court for additional consumer credit in excess of $2,500. Court permission for necessities, such as transportation or a home purchase, is often granted.
Limitations On Your Expenditures: You are limited to a budget for reasonable and necessary living expenses for a period of 3-5 years, and additional disposable income, such as a bonus or overtime income, during that time is dedicated to your repayment Plan. However, there are provisions for retaining those additional forms of income in special circumstances.