Beecher & Conniff
Chapter 13 bankruptcy allows an individual to consolidate his or her debt
while paying off some past-due and current debts. A payment plan is proposed which repays the debt over a three to five year
period. A Chapter 13 case allows an individual to keep valuable property which could otherwise be foreclosed upon or repossessed,
if monthly payments are made according to the payment plan accepted in the bankruptcy proceeding. The amount of the monthly
payment and the length of the repayment plan is based upon the following factors:
- Monthly income of the person
- Monthly expenses of the person
- Amount and nature of the debt
The most common uses of Chapter 13 involve:
- Repayment of mortgage arrears (back amounts owed). In some cases junior mortgages can be eliminated if the value of the property is consumed by the first mortgage
- Restructuring of some auto loans to save a vehicle
- Secured debts are paid 100% on the dollar, while unsecured debts may be paid
less than 100% on the dollar. A person receives a discharge under Chapter 13 at the completion of the payment plan.
When do I get my discharge?
of the payments under the Chapter 13 Plan that has been confirmed by the Bankruptcy Court.
What role does
the Chapter 13 Trustee play in the case?
The Chapter 13 Trustee performs many roles. The Trustee serves as a
disbursing agent for payments under the plan. The Trustee examines the debtor at the meeting of creditors and is actively
involved in the certification process. The Trustee can also object to confirmation of the plan and makes a determination in
each case whether the debtor has satisfied the "disposable income test" and the "best interest of creditors test." If either
of the tests is not met, it is the Trustee's duty to object to confirmation. The Trustee can also file a motion to dismiss
the Chapter 13 case for a "bad faith filing" or for failure to make payments called for by the plan.
is the meeting of creditors and what happens?
The meeting of creditors is a scheduled meeting conducted by the
Chapter 13 Trustee where the debtor is examined under oath concerning his assets and debts. Creditors who choose to attend
the meeting either in person or through their attorney can ask questions concerning anything relevant to the case. As a practical
matter, creditors rarely attend the meeting of creditors. The average meeting of creditors lasts about 3 to 5 minutes. It
is mandatory for all debtors to attend the meeting of creditors. If you retain an attorney, the attorney will accompany you
to the hearing.
What is the "disposable income test" in Chapter 13?
Under the new bankruptcy
laws the amount of money you have to pay to creditors in a Chapter 13 case is determined by a fairly complicated formula that
takes into account your gross income and compares it to State Median Incomes for a family of your size. The expenses that
are allowed are determined by a combination of your actual expenses and expense allowances determined by the IRS. In many
cases these allowances when combined may exceed your actual expenses and result in lower payments to creditors. The debtor
must commit this hypothetical "surplus" to the plan for the life of the plan. In all cases your attorney will work with you
to come up with a repayment plan that meets your needs and the requirements of the new bankruptcy laws.
is the "best interest of creditors test" in Chapter 13?
This test requires the debtor to make sure that under
the Chapter 13 Plan the unsecured creditors receive at least as much under Chapter 13 as they would receive if the case were
handled under Chapter 7. This involves completing a liquidation analysis by your attorney to determine what the unsecured
creditors would receive under Chapter 7. The Chapter 13 Plan must provide at least that much to the unsecured creditors.
Do I have to list all of my creditors?
Yes. Bankruptcy law requires a full and complete disclosure
to whom the debtor owes money. Bankruptcy schedules are signed under the penalty of perjury and the debtor will be asked under
oath at the meeting of creditors if all debts were disclosed.
Can I transfer ownership of my home, car, boat,
collectibles, tools, etc. to someone else to keep these items out of bankruptcy?
No. Such transfers will almost
invariably violate provisions of the law prohibit concealment of property or the transfer of valuable property to friends
or relatives. The Chapter 13 Trustee has the power to set these transfers aside. The Trustee can also ask for the case to
be dismissed for a "bad faith filing." Moreover, federal law could be invoked to initiate criminal proceedings based on bankruptcy
crimes if you intentionally conceal property from your case..
Are certain debts dischargeable in Chapter 13
that are not dischargeable in Chapter 7?
Yes. Credit card fraud, embezzlement, larceny, defalcation, conversion,
and certain IRS debt owed by non-filers can be discharged in Chapter 13. Alimony, child support, student loans (most but not
all), and personal injury in DUI cases and certain IRS debt are not dischargeable in Chapter 13.
Can the Trustee or a creditor object to confirmation of a Chapter 13
Yes. It is the Trustee's responsibility to object to Chapter 13 Plans that are deficient. A creditor may
also object, but generally most objections will come from the Chapter 13 Trustee. Most objections are worked out or resolved
prior to the confirmation hearing but occasionally the court has to take evidence and rule.
How long does
a Chapter 13 remain on a credit bureau report?
Seven years. However, credit can usually be established as
soon as the discharge is granted. The significance of the 7 year period is that the reference to bankruptcy will be deleted
from the public records section of your credit report after 7 years.
What is a co-debtor stay?
the joint debt is a consumer debt (secured or unsecured) and the plan proposes to pay the debt in full, the creditor is blocked
by the Chapter 13 filing from taking collection action against the non-filing co-debtor.
Can my junior mortgage be released in a Chapter 13? Lien Stripping.
In some cases where the amount owing on senior mortgages is greater than the value of the property junior mortgages can be stripped away. This procedure requires some significant additional attorney work for which additional fees will be charged. For example, if your house is worth $100K, with a first mortgage of $125K, and a second mortgage can attach, so we can make it go away.
Our office has been successful in structuring mortgage loan modifications in appropriate cases and we encourage you to discuss your situation with us. We have been able to do loan modifications in the context of a pending bankruptcy case.
Call (253) 627-0132 today!