Chapter 13 Bankruptcy
This page answers many of the most common questions people have about Chapter 13 bankruptcy and describes the Chapter 13 bankruptcy process at Kidwell Law Office.
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What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy allows you to restructure your debts under a court-approved repayment plan that generally lasts from 3 to 5 years. At the end of a Chapter 13 plan, any unsecured debts that have not been paid in full are eliminated, or “discharged.”
Chapter 13 can be an effective tool for people with regular income who have fallen behind on their house payments, car payments, or tax obligations.
Why Should I File Chapter 13 Bankruptcy?
If your income is too high to qualify for a Chapter 7 case you may consider filing Chapter 13 instead. You will be required to commit net income above your reasonable monthly expenses to fund the Chapter 13 plan, but this is generally much less than the total amount of payments creditors were demanding. While your debts are not canceled in Chapter 13 bankruptcy like they are in Chapter 7, they are most often very significantly reduced.
Once you file for Chapter 13 bankruptcy, all creditor harassment, threats of foreclosure/eviction, car repossession, wage garnishment, and collection lawsuits will immediately stop.
You should consider filing a Chapter 13 bankruptcy if you:
- Have fallen behind on your mortgage payments and are in danger of losing your home to foreclosure
- Have fallen behind on your car payments and are in danger of losing your vehicle to repossession
- Have fallen behind on paying:
- taxes to the IRS and Department of Revenue
- child support
- Have valuable property which is not-exempt, but you can afford to pay creditors from your income over time
- Have filed Chapter 7 within the last 8 years but need protection from creditors
Some other advantages to filing Chapter 13 bankruptcy include:
- Chapter 13 may allow you to “cram down” or reduce the interest rate on your vehicle loan.
- Chapter 13 may allow you to “cram down” or reduce the amount you owe on your vehicle to the value of the vehicle, rather than the amount left on your loan. This works if you have owned the vehicle for more than 910 days (2.5 years).
- Chapter 13 can put your student loans on hold for several years while you pay down your other debt.
While Chapter 13 bankruptcy may be the right solution for your unmanageable debt, it’s important to remember that by creating a plan to pay down your debt over time you will be involved in the bankruptcy process for 3 to 5 years.
There are many factors to consider when deciding if Chapter 13 bankruptcy is the right option for your situation. We can discuss these factors if you contact me for a free consultation.
What Does It Cost to File Chapter 13 Bankruptcy?
Kidwell Law Office generally charges a flat fee of $3,200 to represent clients filing Chapter 13 bankruptcy. However, total attorney fees will depend on the complexity of your case.
Additional costs, including the court filing fee and charges for mandatory credit counseling, will generally total about $375.
Do I Qualify for Chapter 13 Bankruptcy Relief?
Not everyone can file a Chapter 13 case. Some of the requirements for filing a Chapter 13 case include:
- You must meet certain residency requirements.
- You must have a regular source of income.
- You cannot have over $1,677,125 of debt; of that, unsecured debts must be less than $419,275, and secured debts less than $1,257,850
- If you have previously received a discharge through Chapter 7, you would have to wait 4 years before filing Chapter 13.
- If you have previously received a discharge through Chapter 13, you would have to wait 2 years before filing another Chapter 13 case.
I can advise you of these matters at our initial meeting.
What Debts Can Be Eliminated (Discharged) in Chapter 13 Bankruptcy?
Chapter 13 bankruptcy allows you to restructure your debts through a payment plan, which usually takes 3 to 5 years. Your payment plan will prioritize certain debts (called priority claims) over other debts (non-priority claims), which means your priority claims will get paid out first.
When you complete your plan, you will receive a Chapter 13 discharge that eliminates any remaining non-priority debts.
The most common types of non-priority, unsecured debts that can be eliminated (discharged) in Chapter 13 bankruptcy include:
- credit card debt
- medical bills
- personal loans
- older nonpriority income tax obligations
- utility bills, and
- most lawsuit judgments.
What Debts Cannot Be Eliminated (Discharged) in Chapter 13 Bankruptcy?
Debts that cannot be discharged in Chapter 13 bankruptcy include:
- certain long term obligations (such as a home mortgage),
- debts for alimony or child support,
- certain taxes,
- debts for most government funded or guaranteed educational loans or benefit overpayments,
- debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and
- debts for restitution or a criminal fine included in a sentence on the debtor’s conviction of a crime.
- Certain credit card debt and cash advances incurred in the 90 days prior to filing bankruptcy
- Sales, property, and withholding taxes
- Divorce property settlements
Will I Lose My Home, Car or Other Assets If I File Chapter 13 Bankruptcy?
No, you will not lose assets in a Chapter 13 case. Chapter 13 bankruptcy allows you to keep all of your property in exchange for paying back a portion or all of your debts through your repayment plan.
However, your Chapter 13 plan must show that your unsecured creditors will receive at least as much money through your plan payments as they would have received if you had filed a Chapter 7.
The Chapter 13 Bankruptcy Process
STEP 1: YOUR FREE INITIAL CONSULTATION
I provide a free and confidential initial consultation by phone, via Zoom or Skype, or in person to anyone looking for legal representation in the filing of a bankruptcy petition.
The purpose of this meeting is for us to analyze your financial affairs together so that I can determine whether bankruptcy or some other non-bankruptcy option is the best solution for your situation.
I will ask you a lot of questions during this meeting to identify any legal issues that might affect a bankruptcy filing and, if bankruptcy is an option for you, to begin to determine how best to protect your assets and property.
To prepare for your initial consultation, I will need you to fill out a few forms that provide information about your income history, total indebtedness, and total assets.
Remember, there is absolutely no charge for this free consultation and you will not need to make any commitment or decision to have me represent you at this time unless you feel comfortable doing so.
STEP 2: YOU PROVIDE US WITH INFORMATION & COMPLETE CREDIT COUNSELING
If you decide to have me represent you for your Chapter 13 bankruptcy, I will need you to provide me with copies of bills, copies of tax returns, pay stubs, and other information necessary to get your Chapter 13 bankruptcy case filed.
With this information, we will come up with your Chapter 13 payment plan showing that you have sufficient disposable income to pay your creditors. The amount of your payments is based on your net income minus reasonable and necessary expenses for you (and your family, if applicable).
Chapter 13 payment plans last for a period of three to five years, and you’ll begin making payments the month after filing your case.
Your Chapter 13 plan will specifically provide full payment for any priority debts (for example, delinquent taxes or child support) and secured debts you are behind in paying (for example, mortgages or vehicle payments), and either full or partial payment of unsecured debts like credit cards or medical bills.
Federal bankruptcy law requires that you provide the following information to me before I file your Chapter 13 bankruptcy:
- 7 Months Pay Stubs, or 6 Months Income Records if Self-employed
- Copy of Your Federal and State Income Tax Return.
- Documentation of Your Household Income, Expenses, Property and Other Assets
- List of Debts.
- Signed Attorney Agreement.
- Pre-Bankruptcy Credit Counseling Certificate: This certificate is obtained by taking a credit counseling course from a Justice Department-approved credit counseling agency. This course takes about one hour to complete and can be done by telephone or by internet. We will provide you with information on how to complete it.
While this is a lot of information to gather together, Kidwell Law Office makes this process easy. As our client, we will provide you with a link to a secure website where you can easily fill out forms online and upload all the bankruptcy related documents needed for your case and provide you with the information you need to complete your pre-bankruptcy credit counseling course.
STEP 3: WE REVIEW & SIGN BANKRUPTCY PAPERWORK
After we receive your documents and forms, we will schedule you for a meeting to review and sign your Bankruptcy Petition, Schedules, Statement of Financial Affairs, and Chapter 13 Plan which will be filed with the court.
Typically, this meeting takes 1 – 2 hours to complete.
STEP 4: WE FILE YOUR CASE WITH THE COURT
When all your paperwork is reviewed and signed, we file your Chapter 13 bankruptcy documents with the Court by electronic filing over the internet.
The filing of your bankruptcy petition results under federal law in an “automatic stay” that immediately stops:
- foreclosure or eviction proceedings
- car repossession,
- wage garnishment, and
- harassing phone calls and letters from debt collectors.
If your creditors willfully violate the automatic stay they can be held liable for any actual damages caused, including costs and attorneys’ fees, and in some cases may be held liable for punitive damages.
STEP 5: WE ATTEND THE MEETING OF CREDITORS (341 HEARING)
About 30 days after we file your bankruptcy case, we will attend the Meeting of Creditors or 341 Hearing together. If you and your spouse are filing jointly, you both must appear at the meeting of creditors.
You (and your spouse, if filing jointly) will be required to bring the following to your Meeting of Creditors (341 Hearing):
- Photo ID
- Social Security card
- Most recent pay stub
This meeting permits the United States Trustee (or their representative) to review your petition and schedules and question you under oath regarding your assets, liabilities, and other matters that pertain to your bankruptcy case. In addition, the trustee (or representative) will ask questions to ensure that you understand the bankruptcy process.
Creditors are also invited to ask you questions about your assets or other matters pertaining to your case. In most cases, however, creditors do not attend the 341 Hearing.
We’ll meet about 15 minutes before the Meeting of Creditors starts to go over the questions you may be asked. The meeting usually lasts no more than 10-15 minutes, and we’ll be right by your side.
Hiring an experienced bankruptcy lawyer to represent you is the best way to ensure that your 341 Hearing – and the entire bankruptcy process – goes smoothly.
STEP 6: CHAPTER 13 CONFIRMATION HEARING
Your Chapter 13 plan must be approved (confirmed) by a bankruptcy court judge at a Chapter 13 confirmation hearing.
The purpose of this hearing is for the judge to determine whether your plan was filed in good faith and whether it is feasible (in other words, whether you’re likely to make the plan payments over the specified time period). The court will also address any plan objections made by either a creditor or the trustee if they haven’t been resolved prior to the confirmation hearing.
Unless an objection to your plan has been filed you don’t have to appear at the confirmation hearing, but you can if you choose to do so.
If all goes well, the court will confirm your plan. Once confirmed, the plan is binding on both you and your creditors.
STEP 7: YOU COMPLY WITH PLAN REQUIREMENTS AND PAYMENTS
You must make your plan payments throughout the duration of your Chapter 13 plan. The trustee will require that you submit copies of your annual tax returns; you may also be required to submit other documents, like income and expense statements.
If you experience changes to your income or expenses during the duration of your Chapter 13 case, you can modify your Chapter 13 plan to reflect the changes. I will advise you if this is necessary and do this for you.
STEP 8: YOU COMPLETE PRE-DISCHARGE DEBTOR EDUCATION COURSE
Before your discharge can be approved, you must complete a debtor education financial management course from a Justice Department-approved credit counseling agency. This course takes about one hour to complete and can be done by telephone or by internet. We will provide you with detailed information on how to complete it.
STEP 9: YOUR DEBTS ARE DISCHARGED!
When the repayment period ends, the court will grant a discharge. The discharge wipes out any remaining balance of qualifying debt.
A bankruptcy discharge releases you from all liability for your debts and forbids creditors from contacting you in any way regarding those debts at any time in the future.
The Kidwell Law Office website has a page (Life After Bankruptcy) with a number of excellent articles explaining what you can expect after your bankruptcy discharge. These articles provide money management strategies and tips on how you can repair your credit to maximize your success after bankruptcy.
What Are the Tax Consequences for Filing Chapter 13 Bankruptcy?
In most cases, if you receive a tax refund during your Chapter 13 bankruptcy you must turn over your tax refund to the Chapter 13 trustee.
If you happen to owe taxes while in a Chapter 13 bankruptcy, the bankruptcy Trustee may need to increase your payments. The amount that the payments would increase depends on how much you owe.
To ensure the greatest chance of success in your Chapter 13 bankruptcy you should be sure you try to fix your deductions so you are breaking even each year.
If you are struggling with unmanageable debt and considering bankruptcy, schedule a free, no commitment consultation with Kidwell Law Office today by clicking on the Contact Us button below.