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CHAPTER 13

Chapter 13:  Personal Reorganization


Chapter 13 is like a debt consolidation.  One monthly payment is made.  Chapter 13 is for a person with regular income who wants to reorganize.  A budget and a plan are made to pay creditors.  The plan may cover a 3 to 5 year period.  The plan must be approved by the court to become effective. If the court approves the debtor’s plan, most creditors will be prohibited from collecting their claims from the debtor during the course of the case. The debtor must make regular payments to a person called the chapter 13 trustee, who collects the money paid by the debtor and disburses it to creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts.


How do you qualify?

  1. Chapter 13 is only for an individual, partnerships, and corporations do not qualify.

  2. Regular income is needed.

  3. Unsecure debts cannot be over $250,000.  Unsecured debts are such debts as medical bills, credit cards, signature loans and charge accounts.

  4. Secured debts cannot be over $750,000.  Secured debts are debts in which collateral is given (for example, banks, savings & loans or finance companies that have a mortgage or lien on cars, trucks, homes, land, mobile homes, furniture or other household items).

How does it work?
     A budget (income and living expenses ) and a plan to pay your creditors are prepared.  Once the bankruptcy judge approves the plan, a portion of your monthly income is given to a bankruptcy trustee who pays creditors.


Are all debts cancelled in a Chapter 13?
     No.  Alimony, child support, student loans, damages caused by driving a vehicle while intoxicated, and criminal restitution (debts as a result by damage or injury caused by a criminal act) are not canceled in a Chapter 13.


What are the advantages of Chapter 13?

  1. All debts are canceled except those listed in the answer above: 
    Chapter 13 plans do not have to pay 100% of your debts.  Your plan may pay all or a percent of your debts.  The payment is based on your monthly income, living expenses, assets owned and debts owed.  If you can't pay 100% of the debts you may pay a percentage.  The remaining unpaid balance is canceled.
  2. Deliquent payments on your home can be made: 
    Deliquent payments on your home must be made within a reasonable amount of time.   These deliquent payments must include interest if the mortgage requires it.
  3. All or most of your assets can be saved:
    You may keep certain assets (most household items) if they are not mortgaged.  Other items which are mortgaed can be kept if you can continue to pay for them.
  4. Unwanted collateral (mortgaged property) can be given back to the creditor: 
    Mortgaged assets (property put up as collateral for a debt) that you do not wish to keep or cannot afford may be given back to the creditor who has a lien or a mortgage on that property.
  5. Co-signers and endorsers cannot be sued:
    Co-signers and endorsers are protected in Chapter 13.  Upon the filing of the Chapter 13, they cannot be sued.  This allows time to make a plan to pay those creditors.   However, the endorsers and co-signers may have to pay a portion of the debt.   If they refuse, a lawsuit may be filed against them.
  6. Consolidate payments without further borrowing:
    One (1) monthly payment is made to the Chapter 13 trustee.  No further borrowing is needed.  The trustee receives payment and disburses to the creditors.
  7. Creditors are prevented from collecting debts:
    When a Chapter 13 bankruptcy is filed the automatic stay (like an injunction) goes into effect.  This stops creditors from taking any step to collect debts.  Creditors cannot call, write, file lawsuits, garnishments or foreclosures.
  8. Interest rates and monthly payments may be lowered on secured debts:
    When money is borrowed, a note and security agreement (mortgage) are signed.  Under the terms of the note and mortgage you agree to put up assets as collateral, pay a certain interest rate and a monthly amount.  Chapter 13 may allow you to reduce the monthly payment as well as the interest rate on these secured debts.  Payments may be made over a 3 to 5 year period.
  9. No interest is paid on unsecured debts:
    No service charges, carrying charges, late charges or interest are paid on unsecured debts in the Chapter 13 plan.
  10.   Overdue taxes can be paid:
    Taxes are paid in the plan.  Taxing authorities are prevented from seizing or garnishing things you own.


What does the Chapter 13 trustee do?
     The trustee questions you about your financial situation, reviews your plan, receives your monthly payments and distributes them to creditors.


Do I have to go to court?
     Yes, two times.

  1. The First Meeting of Creditors.  You appear with your attorney before the trustee.  The trustee will ask about your financial situation.  Creditors may appear, but generally do not.
  2. The Confirmation Hearing. The bankruptcy judge will approve or deny your plan to pay creditors.

What happens if the judge does not approve my plan?
     Three things can happen to your Chapter 13 bankruptcy:

  1. Your plan can be amended.  You can ask the judge to approve your amended plan.

  2. Your Chapter 13 bankruptcy an be converted to a Chapter 7 bankruptcy (liquidation).

  3. Your Chapter 13 bankruptcy can be dismissed.


What are the disadvantages of Chapter 13?

  1. Predicting monthly income and monthly living expenses:
    It is difficult to predict monthly income and living expenses because of unemployment, cuts in salary, sickness and unexpected expenses.

  2. Cannot borrow or use credit while in Chapter 13 without court approval.

  3. Chapter 13 will be on your credit record for ten years.

  4. A wage assignment:
    Some Chapter 13 trustees require your employer to give a wage assignment and send plan payments directly to the trustee.

  5. Cannot change the amount of your house note:
    This applies when your house is the only collateral.  If other assets are mortgaed along with your house, the monthly note can be modified.


What factors should I consider in filing a Chapter 13?

  1. Do I have regular monthly income?

  2. Is there any money left over after my living expenses?

  3. Can I pay unsecured creditors more in Chapter 13 than a Chapter 7 (liquidation proceeding)?

Can creditors object to my plan?
     Yes.  Creditors are mailed a summary of your plan.  They can object to the plan and have a hearing before the bankruptcy judge.

When do my payments to the trustee begin?
     Thirty (30) days from filing the Chapter 13 plan.

When I complete my Chapter 13 payments, what happens?
     The unpaid balance of my debts is canceled.

May I pay certain debts directly to creditors?
     Yes.  You may pay certain debts directly (outside of the plan) to creditors and not pay the Chapter 13 trustee.  Your monthly house note is a good example.

 

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code