Chapter 13, another type of Bankruptcy

Chapter 13 is a special part of the bankruptcy law. It lets you file a payment plan and gives you a way to repay all or part of your debts while protecting you or your co-signer from claims by creditors. The plan essentially sets out your debts and says how you intend to pay them. If your financial problems or debts cannot be helped by consumer credit counseling or a Chapter 7 straight liquidation, Chapter 13 may be an alternative for you. The filing fee is $310.

The law does not require you to have a lawyer. However, Chapter 13 bankruptcy can be complicated and the bankruptcy law changes from time to time. You may want to talk with a lawyer before filing a Chapter 13 case. Note that hiring an attorney for a Chapter 13 case generally costs more than a Chapter 7 case.

To qualify for Chapter 13, you must meet several requirements. You must be an individual, or husband and wife, or a sole proprietor of a business. You must have a regular income, even if from government benefits, pension or child or spousal support. A partnership or a corporation does not qualify for this type of bankruptcy. At the time of this writing, your unsecured debts must be less than $394,725 and your secured debts less than $1,184,200. A secured debt is one for which the creditor has retained an interest in some of your property, such as when you obtain a mortgage on your house or finance the purchase of a car.

The maximum length of a Chapter 13 plan is five years. You cannot receive a discharge in a Chapter 13 case if you have received a discharge in a Chapter 7 case filed within the last four years, or received a Chapter 13 discharge in a case filed within the last two years.

There are specific procedures involved in filing a Chapter 13 plan. First, you or your lawyer will need to prepare a financial summary of how much you owe and to whom, what your assets are, and what are your monthly income and living expenses. You must also prepare a proposed plan for repayment of your debts. Your plan will provide for monthly payments to the trustee for distribution to your creditors. The amount of your monthly payments depends on a number of factors, including your income and expenses. All of these items must be prepared on court-approved forms.

Before you can file for bankruptcy, you must complete a credit counseling course. Once you complete the course, you will receive a certificate of completion, which will be valid for 180 days. After you file bankruptcy, and before you can receive a final discharge of your debts, you must complete a debtor-education course. Both of these courses can be completed on the Internet or on the telephone. Depending on your financial situation, you may have to pay a course fee.

Once you file your Chapter 13 case, the court will appoint a trustee. The trustee has a number of duties, one of which is to make the payments to your creditors from the money you pay to the trustee pursuant to your plan. Shortly after you file the bankruptcy you must submit a copy of your most recently filed federal tax return, or a transcript of it, to the trustee. You must also file all required state, federal and local tax returns, and continue to file them during the period of the plan. You must give to the trustee any net state and federal refunds that you receive. Before you can receive a discharge, you must certify that all domestic support obligations have been paid in full or that your plan provides for the payment of the obligations. If you fail to pay domestic support obligations during the plan, the court may dismiss your case. A domestic support obligation is essentially spousal support (alimony) or child support.

You will be required to make your first payment to the trustee within 30 days of the date you filed your plan even if your plan is not yet confirmed by the court. It is important to understand that you have to timely make the payments required by the plan; if you miss a payment the trustee will start the procedure to dismiss your case. Only the Bankruptcy Court can authorize you to miss a payment. Similarly, without permission from the trustee, you cannot enter into any credit obligations during the course of the plan.

After you file, the Bankruptcy Court will set a date for a hearing. This hearing is called the meeting of creditors or the “341(a) hearing.” You and all of your creditors will be notified of the time, date and place of this meeting, and you will be required to attend and answer questions under oath about your financial matters.

The appointed trustee for your case will conduct the meeting. It is the trustee’s job to verify the financial information you give. The trustee will then determine whether he or she can recommend to the judge that your plan can be confirmed. At the meeting, the trustee and your creditors may question you about your income, expenses, property, past earnings and your proposed repayment schedule.

About six weeks after the 341(a) hearing, the court will schedule a hearing to determine if your plan is acceptable and meets all of the requirements. This is called the confirmation hearing. The court will notify you of the date of the confirmation hearing. At the confirmation hearing, the judge will determine whether your plan should be confirmed and allowed to proceed. The creditors may attend this hearing and offer any objections they may have. Your presence at the confirmation hearing is not always required, particularly if you have an attorney. If your plan is confirmed, and you are employed, your employer may be ordered to make monthly payments to the trustee by taking them out of your wages.

Benefits Available With Confirmed Chapter 13 Plans
The following benefits would be available to you if your Chapter 13 plan is filed in good faith, the filing fees are paid, the plan is confirmed by the court, you can make your proposed payments, and you otherwise comply with all of the requirements:

• If you complete the plan, which means that you make all of the required payments and comply with all other requirements, you can be excused from paying the remaining balance of most debts. Examples of debts that cannot be excused are: those for willful or malicious injuries that cause personal injury or death; most domestic support obligations, such as child or spousal support; personal injury damages that are the result of willful or malicious conduct; damages for death or personal injury caused by driving under the influence; certain student loans; restitution and certain criminal fines included in a criminal conviction; most debts incurred as the result of fraudulent conduct; and certain tax debts.

• Although you cannot discharge many student loans and some tax obligations, you can gain additional time to become current.

• You might be able to stop or delay a foreclosure against your home by making the back payments over a period of time. Such an extension is also available on delinquent taxes. You may also be able to remove a lien created by a second mortgage on your house.

• If your monthly payments on contracts are too large, you may be able to lower the monthly payment and possibly the interest rate. House payments are the exception; they cannot be changed.

• If necessary, you can pay the unsecured creditors less than 100 percent of their claims. Some taxes must be paid in full.

• You can stop or modify interest from continuing to accrue on unsecured debts in most instances.

• You can take up to three years to repay the claims, and under some circumstances, you may take up to five years.

• You may be able to keep your property that would otherwise be sold and distributed to your creditors in a Chapter 7 bankruptcy.

• You may be able to stop some or all collection activities against a person who co-signed or is otherwise obligated for one of your debts.

• For most debts you incurred before you filed your bankruptcy petition, no one can demand payment from you, sue you, garnish your wages or repossess property without court approval.

• You can sometimes pay extra into the plan to pay it off sooner.

• You can propose to sell some of your property as part of the monies to be paid through the plan.

• If there is a major change of circumstances, you can propose changes to your plan that would help you complete it. However, you cannot stop making the required payments without permission from the Bankruptcy Court. If the change of circumstances is beyond your control and makes it impossible to continue even a modified plan, you can request a “hardship discharge, and discharge some, if not all, of your debts.

• You have the option to dismiss your case at anytime, or convert it to a Chapter 7 bankruptcy.

It is important to realize that changes may occur in this area of law. This information is not intended to be legal advice regarding your particular problem, and it is not intended to replace the work of an attorney.

We are attorneys in Hermiston and Pendleton, Oregon.