Exactly how does Chapter 13 work?
A Chapter 13 plan permits individuals who have a steady source of income to pay part or all of their debts under protection of the bankruptcy court. If you file Chapter 13, you file a petition and a plan with the bankruptcy court. The bankruptcy law requires that the payments you make through the plan to unsecured creditors have a value of at least what the creditors would have received if you had chosen to file a Chapter 7 case.
Who can file a Chapter 13 plan?
Only an individual or a married couple, not a corporation or partnership, can file a Chapter 13.
Must you be employed to use a Chapter 13 plan?
Generally, yes, but if you have regular income from self-employment, a pension, Social Security, unemployment insurance, welfare, union benefits, disability insurance, alimony, odd jobs, income from family members, or child support, a Chapter 13 plan still can be used. Many small businesses–those owed by individuals–can file and obtain the benefits of Chapter 13.
How are new bills handled after you file Chapter 13?
Chapter 13 mainly deals with your old bills. Your usual living expenses for rent or mortgage, food, clothing, insurance and utilities will come out of your remaining income after your Chapter 13 payment is made.
Is it true that under Chapter 13 cosigners on consumer debts are also protected?
Yes. Those who cosigned for you on various loans or purchases will not be affected by your Chapter 13 plan as long as you pay 100 percent of the debt they have cosigned, including interest required in the loan agreement. If not, creditors can approach cosigners for the balance of the debt immediately. Keep in mind that you can choose to pay 100 percent of a cosigned debt, yet only pay a small portion of your other debts.
Is the cosigner’s record affected?
The cosigner’s credit record may already be marked with slow pay if you were late with payments prior to filing. The Chapter 13 plan may also cause the cosigner’s record to be marked slow pay.
Can I consolidate all my bills?
Yes, except your post-petition mortgage payments. Unless special circumstances exist, your post-petition mortgage payments will be paid on your own, outside the Chapter 13 plan. Any mortgage payments you missed prior to filing your plan (pre-petition payments) will be included in the plan.
Can my creditors stop me from filing a Chapter 13 plan?
No, creditors cannot stop you from exercising your right to file under Chapter 13. Creditors will sometimes tell you they “will not accept the filing” or they “will prevent the court from accepting the filing.” Don’t believe these statements. Let your lawyer or paralegal advise you how your plan will work.
How long does a Chapter 13 plan last?
The usual time frame is 36 months. However, you can pay off your plan sooner if you wish, and with special court permission you can extend your plan to 48-60 months.
What are the usual costs involved in filing a non-business Chapter 13
Costs, including disbursements, may vary depending on your case. The attorney’s fee and disbursements must be approved by the court. In many cases a substantial part of the fee and disbursements can be included in the plan with the rest of your bills. If your case is more complex or involves a business, a higher fee will be required.
Is it true that if you filed bankruptcy in the past six years, you can still file a Chapter 13 plan?
Yes. You cannot file a second bankruptcy (Chapter 7) within 8 years of the first, but you can file a Chapter 13
What happens to my Chapter 13 plan if I cannot work for a while because I am ill, injured or have lost my job?
The court and the Chapter 13 trustee will give you an opportunity to explain your situation and will keep your Chapter 13 plan in place if your disability is temporary or your lack of work is not too prolonged.
Do I need permission from my spouse to file?
No. Any person who is employed or has a regular income can file at any time.
To whom will I make my Chapter 13 payments?
Usually payments are deducted from your paycheck and sent to the office of the Chapter 13 trustee for distribution to your creditors.
May I file a Chapter 13 if I am self-employed or own a small business?
Yes. The Bankruptcy Code allows for those who are self-employed and those who are in a sole proprietorship to file Chapter 13.
Will Chapter 13 stop mortgage foreclosures, late charges and added interest on past-due bills?
Generally speaking, yes. If your plan calls for it, the court may approve a plan in which you are given an extension period to catch up on back payments on your mortgage.
Can I file if my income is from SSI, Social Security Disability, veterans assistance or other monetary assistance?
As long as these payments allow you to pay rent, food and other necessities of life together with your Chapter 13 payment, your petition will probably be approved by the court.
Do I need a cosigner of any kind to file Chapter 13?
What happens if you can’t keep up with your Chapter 13 payments?
If you fail to make a substantial number of your payments to the trustee, he will ask the judge to dismiss your case. If the case is dismissed, the collection calls will begin again, and you may have your car, for example, repossessed or your home foreclosed upon. Stay in touch with your attorney and paralegal if you run into problems, they can often suggest a number of solutions that might help you. What we recommend will depend on your circumstances. In some instances you can immediately file a new case once your old 13 plan is dismissed and obtain an additional 36 to 60 months to pay on a new plan. Perhaps Chapter 7 might be an option to consider. Don’t panic–call your lawyer or paralegal for a conference to review all your options.
If I have been sued, am behind in my bills, have debts in a collection agency, have had my wages attached, have a judgment against me, a house foreclosure or other legal problems, can I still file Chapter 13 and stop these actions?
Yes, Chapter 13 stops almost all types of court actions.
How have the rules in Chapter 13 changed regarding payment to car loan creditors?
Chapter 13 clients will not be able to cram down on car loans as easily as in the past. If the debtor took out the car loan less than two and one half years ago, they cannot cram down on the car. That means that under Chapter 13, they would have to pay the full loan amount back in monthly payments. If the loan was over 2.5 years old, then the debtor could cram down the loan and pay the Fair Market Value, which is often much less than the loan balance.