Chapter 13 Bankruptcy From A–Z
Everything you need to know about Chapter 13 and more...Help me get my life back now!
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WHAT IS A CHAPTER 13 BANKRUPTCY?
A Chapter 13 Bankruptcy is a government sponsored debt consolidation plan with some twists. First, creditors cannot collect from you while you are in the plan. Second, debtors make payments, based on their ability to pay, not what creditors want you to pay. Third, at the end of a 3 year (minimum) to 5 year (maximum) plan, whatever debt remains unpaid, gets “discharged” or wiped out, tax free, forever.
Who can file Chapter 13 Bankruptcy?
In order to file Chapter 13 Bankruptcy in a particular state, you must meet certain residency requirements. It’s not possible to move to Minnesota and file Chapter 13 Bankruptcy in Minnesota after being there one day.
There are also limitations on filing Chapter 13 Bankruptcy (and receiving a discharge) if you have filed Chapter 7 or Chapter 13 Bankruptcy before. So, whether you have filed prior bankruptcies will be an issue in determining whether you can file a Chapter 13 Bankruptcy now and receive a discharge.
Finally, there are debt limitations in order to file a Chapter 13 Bankruptcy. If you are above those limitations, you may not qualify to be a Chapter 13 debtor.
Common causes of Chapter 13 Bankruptcy
There are numerous things that cause people to file Chapter 13 Bankruptcies. The list of negative things that can affect the human condition are too numerous to count.However, there are threads that run thought out the vast majority of Chapter 13 Bankruptcies filed throughout the United States.
There are five common reasons that cause Americans to file Chapter 13 Bankruptcy. They are:
- Business failure
- Income drop
- Relationship break ups/divorce
- Medical problems
- Bad financial decisions
Occasionally, clients may have one of these. Sometimes clients have all five. But, if you are digging for the root cause of the vast majority of Chapter 13 Bankruptcy filings in the United States, you will likely find one or more of those causes on this list.
What NOT to do before filing Chapter 13 Bankruptcy
If you are contemplating filing Chapter 13 Bankruptcy anytime in the near future, there are things that you should not do before filing Chapter 13 Bankruptcy. It’s not that doing these things will necessarily prevent you from being eligible to file Chapter 13 Bankruptcy -- it’s that doing these things will complicate your Chapter 13 Bankruptcy.
First, do not pay relatives or business partners/associates any money you owe them before you speak to a competent bankruptcy lawyer. Second, do not transfer any assets for less than fair market value to anyone. Third, do not hide or conceal your assets from creditors with the intent to hinder, delay, and defraud your creditors.
Your best bet is to always speak to a competent bankruptcy lawyer before doing anything.
Chapter 13 Questions & FearsHelp me get my life back now!
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There are a number of common fears and questions raised by the public time and time again. These are fears and questions we would all have about Chapter 13 bankruptcy and they often come out in the very first phone call a law office receives.
Is a Chapter 13 Bankruptcy Public Information?
When it comes to Chapter 13 Bankruptcy there are no shortage of anxieties about the affect filing Chapter 13 Bankruptcy has on the person looking into it. Yes, Chapter 13 Bankruptcy is public information. If someone wanted to search for who has filed bankruptcies bad enough they could find it.
How long does Bankruptcy Stay on Your credit report?
Chapter 13 Bankruptcy remains on your credit report for 10 years, from the time you filed.
What happens to my credit Score after filing?
For the vast majority of people who file bankruptcy their credit scores improve when they receive a Chapter 13 discharge. Why? Because they have no debt.
Can I buy A House, Car, Rent Or Get Credit Cards After I File Chapter 13 Bankruptcy?
Thousands of people across the United States file Chapter 13 Bankruptcies each year. They go on to finance homes and finance vehicles after, and during, their Chapter 13 Bankruptcy, and even rent. This includes obtaining credit card solicitations in the mail, even before the Chapter 13 Bankruptcy is completed.
Whats The Minimum Amount Of Debt You To File?
If you are suffering from paying back debt, and the creditors will not leave you alone, there is no amount that is too small to file on. Now, if you start to get below 5k, most lawyers will cringe and try desperately to seek alternatives to Chapter 13 Bankruptcy that may be cheaper.
When Can I stop paying my creditors?
Most bankruptcy lawyers will tell you to stop paying your creditors as soon as you know you are going to file Chapter 13 Bankruptcy.
How Does Bankruptcy Affect A Spouse Or Co-Debtor?
Filing a Chapter 13 Bankruptcy will not negatively affect your spouse’s credit. You are filing bankruptcy, not your spouse. With that said, if your spouse is a co-debtor on a debt with you, your liability for the debt goes away but your spouse's does not. While there is a co-debtor stay on joint debts, your spouse will want to continue to pay on any debts in which they are co-debtor with you if they don’t want their credit affected. In other words, the automatic stay protects your spouse on joint consumer debt, BUT, if your spouse doesn’t want delinquent payments to reflect on their credit score, they need to continue to make payments on the joint debt.
Divorce First or Bankruptcy First?
If you are considering bankruptcy, and going through divorce, it generally makes sense to file the Chapter 13 Bankruptcy first. The Chapter 13 Bankruptcy clears away a debt issue which probably one of the contentions in the divorce and filing the Chapter 13 Bankruptcy first also puts your soon to be ex-spouse on notice that you are filing bankruptcy on these debts.
Can my Chapter 13 be denied And How Long does it take to get a discharge?
Chapter 13 Bankruptcies can be denied but it rarely occurs. The failure of a Chapter 13 to go through is typically because debtors fail to make the payments. If this occurs, the case either gets dismissed or debtor converts to a Chapter 7 Bankruptcy. Besides this, plans can fail to get confirmed by the bankruptcy court but that event is very rare and usually happens when a creditor objects to confirmation of the plan and the court sustains the objection or the dispute remains unresolved. Chapter 13 plans can last anywhere from 3 years to 5 years.
Will my employer Know If I File Chapter 13?
Employers do not find out you filed Chapter 13 Bankruptcy unless you volunteer it or you owe your employer money. Future employers may find out you filed Chapter 13 Bankruptcy if you volunteer it or they ask for a credit check as a condition of employment. You cannot be discriminated against for filing Chapter 13 Bankruptcy. You cannot be terminated or have employment affected solely by the fact you filed Chapter 13 Bankruptcy.
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What Is The Property Of The Chapter 13 Estate?
Property of the Chapter 13 Bankruptcy estate consists of all assets under Section 541 of the Bankruptcy Code that would comprise the Chapter 7 bankruptcy estate and more. Generally speaking, all legal and equitable interests owned by debtor on the date the petition is filed with the court is considered an asset of the bankruptcy estate. This would include debtor’s house, vehicles, furnishings, clothing, business interests, pensions, jewelry, animals, claims against anyone and more.
In addition, under Section 1306 of the Bankruptcy Code assets of the Chapter 13 Bankruptcy Estate would also consist of any asset debtor has acquired after the Chapter 13 Bankruptcy is filed with the court but before the case is closed, dismissed, or converted whichever occurs first.
Debtors income after filing the Chapter 13 Bankruptcy case but before the case is closed, dismissed, or the case is converted is also an asset of the Chapter 13 Bankruptcy estate.
WHAT IS NOT PROPERTY OF THE CHAPTER 13 ESTATE?
Section 541(b) defines assets that are not assets of the bankruptcy estate. It includes certain non-residential leases that expire before commencement of the case and certain monies placed into Education IRAs or Section 529 plans among other assets.
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Who has possession of THe assets IN A Chapter 13 estate?
Section 1306(b) states that except otherwise provided for in a confirmed plan, debtor remains in possession of assets of the Chapter 13 Bankruptcy estate.
What is an exempt asset?
An exempt asset is an asset in which debtors are able to claim a state or federal exemption on and retain not only possession of the asset but ownership of the asset as well. There are a set of federal exemptions debtor can choose from under Section 522 of the bankruptcy code.
Bankruptcy Rule 4003(a) requires debtor to list the property debtor claims to be exempt.
State or federal exemptions?
Each state in the union is different. Some states allow you to opt out of the state exemptions and choose either state or federal exemptions. Some states require residents to use state exemptions only.
What happens to exempt assets?
When debtor files Chapter 13 Bankruptcy, debtor’s attorney uses exemptions to protect debtor’s assets, to the extent possible. This claim of exemptions made by debtor can be objected to by a Chapter 13 trustee. Pursuant to Bankruptcy Rule 4003(b) an objection must be filed within 30 days after the Section 341 meeting is concluded or after an amendment to the list is filed with the court, whichever is later.
When do assets of an estate become The debtors again?
Section 1327(b) of the Bankruptcy Code states that confirmation of the plan vests all assets of the estate in debtor.
What is a non-exempt asset?
A nonexempt asset is an asset of the estate debtor did not claim an exemption on or one in which debtor claimed an exemption on but to which Chapter 13 trustee objected and the court sustained the objection to debtor’s exemption.
What happens to nonexempt assets in Chapter 13?
Under Section 1327(b) of the Bankruptcy Code, confirmation of the plan vests all assets (both exempt and non-exempt) in debtor. Section 1306(b) states debtor retains possession of the assets of the estate but 1327(b) vests title in all assets of the estate to debtor- upon confirmation of the plan.
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What Are Chapter 13 Debts?
Simply put, a debt is any liability on a claim. It could be credit card debt, it could be medical bills, car loans, mortgages, or contingent liabilities like a car accident claim. A debt could be any liability someone or some entity claims you have on a claim they believe they possess against you. (i.e. child support or alimony)
The bankruptcy Code outlines certain debts that are not discharged in a Chapter 13 Bankruptcy. Sometimes, debts are dischargeable unless someone objects and the court sustains the objection. Sometimes, debts are not dischargeable regardless of whether someone objects or not. If the debt is not dischargeable, your liability remains on the debt after receiving a Chapter 13 discharge under Section 1328 of the Bankruptcy Code.
Common debts not discharged in Chapter 13 Bankruptcy/ no objection needed-
Alimony, child support, and 941 or sales taxes are not discharged in Chapter 13 Bankruptcy
Student loans are not discharged in Chapter 13 Bankruptcy. There is an exception to this rule.
Income taxes are not discharged in Chapter 13 Bankruptcy. There are exceptions to this rule.
- Credit card debt
- Loans – all types
- Trade payables
- Medical bills
- Deficiencies on any loans
- Disclaimer- Section 366 of the Bankruptcy Code requires debtor to pay a deposit for
- continued usage.
- Joint debts
- Disclaimer- debtor liability goes away but non-filing co-debtor liability remains.
Common objections to discharge
The above debts are “dischargeable”. In other words, they are discharged unless someone objects and the bankruptcy court sustains the objection.
Section 523 of the Bankruptcy Code lists a variety of reasons why a creditor could object to discharge but the most common is fraud.If debtor uses a credit card without the intent to repay the debt, that is fraud. There are statutory presumptions of fraud where debtor has the burden of overcoming the presumption of fraud. If the statutory presumption of fraud is not triggered, creditor has the burden of proving fraud.
What are priority debts?
Section 507 of the Bankruptcy Code lists a set of debts that are priorities. Priority debts are the debts that get paid first on a Chapter 13 plan. Priorities include, domestic support obligations (i.e. child support or alimony) and taxes. Student loans are not considered a priority even though they are not dischargeable in Chapter 13 Bankruptcy.
What is a preference?
The idea of a preference is that you “preferred” one creditor over another creditor. The Bankruptcy Code defines when debtor made a preferential payment to general unsecured creditors and “insiders” generally considered family members or business partners.
General unsecured creditors
The Bankruptcy Code says that if debtor paid a general unsecured creditor 600 or more within 90 days prior to debtor filing Chapter 13 Bankruptcy, that is a preference. The code makes a distinction for preferences if debtor’s debts are primarily consumer debts or non-consumer debts.
The Bankruptcy code defines an insider, generally speaking, as a family member or business partner. If you paid 600 or more to an insider within 1 year prior to filing Chapter 13 bankruptcy, this is deemed to be a preferential payment. The code makes a distinction for preferences if debtor’s debts are primarily consumer debts or non-consumer debts.
Defenses to preferences
Section 547(c) of the Bankruptcy Code also defines defenses to preferences. Some of the more common defenses are:
- New value defense
- Ordinary course of business
- Security interest
What does a Chapter 13 trustee do with a preference?
Unlike a Chapter 7 Bankruptcy trustee, a Chapter 13 Bankruptcy trustee does not avoid the preference. If there are no defenses to the preference, the amount of the preference is added to the hurdle debtor has to jump in a Chapter 13 Bankruptcy under what we call the “best interest test” found in Section 1325(a)(4) of the Bankruptcy Code.
What is a fraudulent transfer?
A fraudulent transfer, generally speaking, is a transfer of an asset to anyone else for less than fair market value.
2 year RULE
Section 548 of the Bankruptcy Code states that trustees can avoid any transfer of assets to anyone for less than fair market value.There are some limited exceptions to this if the organization is qualified as a religious or charitable organization and the transfer is limited to a certain amount.
State based claims
Trustees may also use state statutes to avoid transfers made to others typically for the purpose of hindering, delaying, and defrauding creditors.
What does a trustee do with a fraudulent transfer?
Unlike Chapter 7 trustees, Chapter 13 trustees do not avoid fraudulent transfers. Instead, Chapter 13 trustees add the amount of the fraudulent transfer to the hurdle debtor has to jump in a Chapter 13 Bankruptcy called the “best interest test” found in Section 1325(a)(4) of the Bankruptcy Code.
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WHAT IS THE Process?
- Meet with competent Bankruptcy counsel. Avoid meeting with paralegals- they cannot give you legal advice and they cannot sign you up for bankruptcy. Avoid out of state companies. Only use competent bankruptcy counsel located in your state of residence.
- Review and sign appointment-
- Attend 341 meeting of creditors
- Confirmation hearing-
Review And Sign Appointment
The purpose of the review and sign appointment is to make sure all your assets and debts are completely disclosed and that the questions asked of you are addressed fully. The schedules filed with the bankruptcy court must be complete, correct, and accurate.
Credit Counseling Classes
The Bankruptcy Code requires all debtors to complete a US Trustee approved Credit Counseling Course prior to filing bankruptcy. This course can be done by phone, on-line, or in person. It can also be done in a variety of languages.
Credit Reports Needed
You will want to have your credit reports pulled (Trans Union, Equifax, and Experian) so that all your creditors get listed on the schedules. Check with the bankruptcy law firm you are working with, some law firms pull the credit reports for you.
Asset Reports Needed
Like credit reports, you will want to have your asset reports pulled to make sure all assets get listed on the schedules. Check with the law firm you are working with, some law firms pull the asset reports for you.
Other information needed
You will also need your last two years tax returns, last 6 months of paystubs, titles to all vehicles and real estate, and a list of all your debts.
Section 301(b) of the Bankruptcy Code states that the filing of the petition constitutes an order for relief. Section 362(a) of the Bankruptcy Code states that the order for relief operates as a stay against most collection activity against debtor and debtor’s assets. There are exceptions to this- for example, the filing of a Chapter 13 Bankruptcy does not stay enforcement of a domestic support obligation or criminal proceeding.
However, all garnishments, levies, repossessions, foreclosures, and evictions against debtor must cease immediately.
Section 1301(a) of the Bankruptcy code prohibits enforcement of any consumer debt against debtor’s co-debtor while the Chapter 13 Bankruptcy is active.
Duties of debtor
Section 521 of the Bankruptcy Code outline many of debtor’s duties. These include, but are not limited to filing various schedules with the court, attending a 341 meeting, and cooperating with the Chapter 13 trustee. This provision also requires debtor to send trustee tax returns, bank statements, and paystubs as well.
Duties of trustee
Section 1302 of the Bankruptcy Code outlines the duties of the Chapter 13 trustee. These duties include, but are not limited to, making sure the schedules are true, correct, and complete. They also include making sure debtor’s plan is feasible and that debtor meets the requirements of Section 1325 of the Bankruptcy Code to confirm the plan. Chapter 13 trustee’s duties are to see that debtors are making Chapter 13 payments based on what they can afford to pay and yet assisting the debtor in re-organizing as well.
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Just like there are actions you should not take before filing Chapter 13 Bankruptcy, there are actions you should not take after filing bankruptcy. Unless approved by competent bankruptcy counsel within your state, never transfer any assets after filing bankruptcy. Similarly, never pay creditors unless instructed to do so by counsel. Also, never fail to cooperate with trustee. Never fail to disclose all assets and debts with the court or be completely candid with your bankruptcy counsel.
The 341 meeting of Creditors
A meeting of creditors must be convened by the US Trustee’s Office within a reasonable time from filing the Chapter 13 Bankruptcy. In the vast majority of cases, creditors do not appear. Instead, the Chapter 13 trustee asks debtor to verify that the information on the schedules is true, correct, and complete.Section 343 of the Bankruptcy Code requires debtor to submit to this examination under oath.
Who normally attends the meeting of creditors?
Chapter 13 trustee, debtor, debtor’s counsel, creditor, and creditor’s counsel.
What happens at the meeting and how long Is it?
Typically, the Chapter 13 trustee asks you to verify that the information on the schedules is true, correct, and complete.The vast majority of hearings are held with the Chapter 13 trustee, debtor, and debtor’s counsel and no one else present. The meeting typically lasts anywhere from 5-10 minutes.
What happens after the meeting of creditors?
- 523 objection-The most common adversary proceeding brought is an objection to debtor discharging a debt for fraud under Section 523(a)(4) of the Bankruptcy Code. For example, if debtor took a 10k cash advance 2 days prior to filing Chapter 13 Bankruptcy, debtor may see an objection brought under this provision objecting to debtor discharging the 10k cash advance.
- Motion for relief- Section 362(d) of the Bankruptcy Code governs creditors request to terminate the automatic stay.There are requirements that creditors must meet in order to terminate the automatic stay. A creditor may seek termination of the automatic stay if debtor has abandoned creditor’s collateral or creditor’s collateral is in jeopardy of losing value if not recaptured as soon as possible.
Can I convert my Chapter 13 Bankruptcy to a Chapter 7 Bankruptcy prior to discharge?
Section 1307(a) of the Bankruptcy Code give debtor the right to convert their case from a Chapter 13 Bankruptcy to a Chapter 7 Bankruptcy at any time.
Can I dismiss my Chapter 13 Bankruptcy?
Section 1307(b) allows a Chapter 13 debtor to dismiss their Chapter 13 Bankruptcy at any time.
Section 1324 of the Bankruptcy Code provides for the confirmation hearing on debtor’s plan. It’s a hearing that is rarely attended by anyone. Debtor’s Chapter 13 plan is usually approved by the bankruptcy court without any one attending the hearing. Objections to plans are brought by creditors and Chapter 13 trustees but they are resolved in advance of the confirmation hearing in the vast majority of cases.
When does the discharge occur?
The Chapter 13 discharge is governed by Section 1328(a) of the Bankruptcy Code. Debtors are granted a discharge upon completion of the plan and filing a Rule 4004 form with the bankruptcy court.
Can I sue creditors who violate the discharge?
Section 524 of the Bankruptcy Code describes the effect of receiving a Chapter 13 Discharge. Italso creates the basis in which to bring an action against creditors who violate the discharge.
Can my Chapter 13 discharge be denied?
In effect, yes, it can be. Section 1330 of the Bankruptcy Code provides for revocation of an order confirming a plan if that order was procured by fraud. If the order confirming the plan is revoked, the bankruptcy court could have the Chapter 13 Bankruptcy case dismissed under Section 1307(c)(7) of the Bankruptcy Code.
Can my Chapter 13 Bankruptcy be dismissed?
Yes, a Chapter 13 Bankruptcy case can be dismissed by debtor under Section 1307(b) or by the bankruptcy court under Section 1307(c) usually under subdivision 6 for a material default by debtor with respect to a term of the confirmed plan.
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How do I get rid of judgments on the public record?
There is a statutory process in most states to removes judgments from the public record. That is, if Capitol One received a judgment against you for pre-petition debt, there is a way typically to remove that judgment. Ask your lawyer what your state’s process is to have those judgments removed.
How do I fix my credit reports when they are reporting incorrect information?
You have a right to review and correct your credit reports with Equifax, Transunion, and Experian. It is important to review your credit reports post discharge and send a dispute form to each credit reporting agency disputing any incorrect information on your credit reports. Credit agencies have 30 days to correct the incorrect information.
Is it possible to still add creditors after you file bankruptcy?
In many instances, it is possible to add pre-petition creditors to your bankruptcy after your Chapter 13 Bankruptcy has been filed. Check with your local state attorney to see if it is possible in your area.
Can I acquire assets after receiving a Chapter 13 discharge?
Yes, you can acquire almost any asset after receiving a Chapter 13 discharge and it is not a problem.
Can I acquire assets before receiving a Chapter 13 discharge?
Yes, but remember, any assets acquired after filing the Chapter 13 Bankruptcy are assets of the Chapter 13 Bankruptcy estate but debtor remains in possession of the assets and confirmation of the plan vests title in the assets with debtor.
Can I acquire auto, home, or credit card loans after receiving a Chapter 13 discharge?
Yes, there is no bankruptcy prohibition against acquiring new debt after bankruptcy.
Am I protected against discriminatory treatment for filing Chapter 13 Bankruptcy?
Section 525 of the Bankruptcy Code outlines the protections afforded debtors against discriminatory treatment. One of those protections is a private employer cannot terminate employment or discriminate against employment of an individual solely because debtor filed Chapter 13 Bankruptcy and received a discharge.
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- Chapter 13 trustee- Section 1302 of the Bankruptcy Code governs the selection and appointment of Chapter 13 trustees. The Chapter 13 trustee duties are also outlined in Section 1302 of the Bankruptcy Code but are primarily concerned with making sure debtors plans comply with section 1325 of the Bankruptcy Code’s requirements for confirmation and the collection of monies required under the plan and the disbursement of those funds according to the terms of the plan.
- Debtor(s) - Debtors can be individuals or married couples. Only married couples can file joint Chapter 13 cases. Debtor’s duties are outlined in Section 521 of the Bankruptcy Code. They are also required to comply with the terms of the confirmed plan. Corporations cannot file Chapter 13 Bankruptcy.
- Debtor’s attorney- only an attorney can give you legal advice and retain you as a client. Never meet with a paralegal or non-lawyer. They simply cannot give you legal advice or retain you as a client.
- Creditor(s)- any entity that purports to have a claim against you for liability on a debt.
- Creditor’s attorney- Only an attorney can give legal advice. Never meet with a paralegal or non- lawyer. Neither a paralegal nor non-lawyer can give you legal advice or retain you as a client.
- Bankruptcy judge- A lawyer who has been appointed to the bankruptcy bench. They serve 14 year terms. The number of bankruptcy judges is determined by Congress.
- Attorney- the term attorney means attorney, professional law association, corporation, or partnership, authorized under applicable law to practice law.
- Creditor- means an entity that has a claim against debtor that arose at the time of or before the order for relief concerning debtor.
- Debt- the term “debt” means liability on a claim.
- Claim- right to a payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. Also, a claim can be an equitable remedy for breach of performance.
- Debtor- means a person.
- Domestic Support Obligation- money paid in the nature child support or alimony.
- Insider- relative or business partner of debtor.
*Definitions abbreviated and taken from Bankruptcy Code