Chapter 13 Bankruptcy Voluntary Reorganization Of Debt For Individuals
Chapter 13 bankruptcy is only available to wage earners, the self-employed and sole proprietors . To qualify for Chapter 13, you must have regular income, have filed all required tax returns for tax periods ending within four years of your bankruptcy filing and meet other requirements set forth in the bankruptcy code.
To take full advantage of the bankruptcy laws and get a fresh start, it is important that you do not continue to incur additional debt. If all or part of the reason you are filing bankruptcy is overdue federal tax debts, you may need to increase your withholding and/or your estimated tax payments. For help determining the proper withholding, visit our online Tax Withholding Estimator. For help with your estimated taxes, visit our Estimated Taxes page.
Find basic information about Chapter 13 bankruptcy below. For more detailed information see the U.S. Courts Bankruptcy Basics Web page.
Mortgages In Chapter 13 Bankruptcy
Treatment of mortgages in Chapter 13 depends upon whether the mortgage is on the debtors principal residence or the mortgage is recorded against an investment property.
Chapter 13 bankruptcy will not change the amount owed, interest rate, or other terms of a first mortgage on the homestead homestead. If the debtors homestead is worth less than the amount of the first mortgage , Chapter 13 does not lower your mortgage balance to the propertys current fair market value.
Though a first home mortgage is not modified in a Chapter 13 bankruptcy, the bankruptcy filing can help some debtors save their home from foreclosure. Florida bankruptcy courts have implemented a program whereby debtor homeowners and may address mortgage modification in a court supervised mediation. Mortgage mediation in bankruptcy gives the property Chapter 13 debtor the opportunity to discuss mortgage payment adjustments directly with lenders underwriters with the help of a third-party professional mediator. Mortgage modification mediation is only available in Chapter 13 bankruptcy.
A Chapter 13 debtor may be able to reduce the first mortgage balance on nonhomestead property to the propertys current appraised value . This is a somewhat complicated process that requires a certified appraisal of the property, and the debtor must be able financially to pay 100 percent of the crammed down mortgage balance during the Chapter 13 Plan .
Filing A Chapter 13 Petition
A Chapter 13 bankruptcy begins with the filing of a petition with the bankruptcy court. You will have to fill out paperwork and submit it to the bankruptcy court where you live. You can find the proper court with jurisdiction over you by using your home address in the Federal Court Finder feature.
Spouses can file together or as individuals. You will only pay the filing fees once if you file jointly.
Chapter 13 Filing Fees and Administrative Fees
Make sure you check the current filing and administrative fees for a U.S. bankruptcy filing. As of 2020, you will pay the court clerk:
- $235 to file the case
- $75 in additional administrative and miscellaneous fees
If you can’t afford the total $310 right now, you can ask the court to pay in four payments. You have to make all four payments within 120 days from filing.
If you face unique circumstances or hardships, you can ask the courts for an extension on the payments. They can approve up to 180 days from the day you file.
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Eligibility For Chapter 13
Chapter 13 bankruptcy has its own set of rules and eligibility requirements. Business entities cannot file for Chapter 13 bankruptcy, although Chapter 11 bankruptcy may provide similar relief for a business. Only individuals or married couples can apply.
To qualify for a Chapter 13 bankruptcy, you must show that you are eligible for this form of relief. You must establish that:
- You did not have a prior bankruptcy application dismissed within the previous 180 days
- You have completed the Credit Counseling Requirement
- You filed your tax returns for the past four years
- The proposed plan repays all required debts
- The proposed plan will repay specific amounts to unsecured creditors
- You have enough income to cover mandatory payments to priority and unsecured creditors
When Dismissal Is Nevertheless Appropriate
If the consequences of dismissal sound pretty bad, often they can be. So why would somebody ever want to dismiss their Chapter 13 case? Simply because in some peoples situations the advantages of dismissal outweigh any disadvantages. Chapter 13 cases can take such different forms and be filed for so many different reasons that its impossible to give a neat and tidy answer to this. So here is one scenario that illustrates when a dismissal can be the best choice.
Assume that a single mom with a young child has a vehicle loan, a home mortgage, and owes back income taxes. During a period of 10 months of unemployment she had managed to keep current on her vehicle loan because that was her absolutely highest priority. But while she was unemployed she could only do this and still take care of her necessary living expenses by not paying her mortgage. So she fell behind 10 payments of $1,500, or a total of $15,000. She also owed $2,000 to the IRS for the prior years income taxes because of not paying any withholding on her unemployment benefits. So she filed a Chapter 13 case a year ago in order to have three years both to catch up on that $15,000 mortgage arrearage and to pay off the income tax. She continued paying the vehicle loan so shes still current on that.
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The Chapter 13 Discharge
The bankruptcy law regarding the scope of the chapter 13 discharge is complex and has recently undergone major changes. Therefore, debtors should consult competent legal counsel prior to filing regarding the scope of the chapter 13 discharge.
A chapter 13 debtor is entitled to a discharge upon completion of all payments under the chapter 13 plan so long as the debtor: certifies that all domestic support obligations that came due prior to making such certification have been paid has not received a discharge in a prior case filed within a certain time frame and has completed an approved course in financial management . 11 U.S.C. § 1328. The court will not enter the discharge, however, until it determines, after notice and a hearing, that there is no reason to believe there is any pending proceeding that might give rise to a limitation on the debtor’s homestead exemption. 11 U.S.C. § 1328.
The discharge releases the debtor from all debts provided for by the plan or disallowed , with limited exceptions. Creditors provided for in full or in part under the chapter 13 plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations.
Notifying Your Chapter 13 Bankruptcy Trustee
The process of notifying your Chapter 13 bankruptcy trustee during the course of your repayment plan varies by state, so youll want to inquire about this with your Houston bankruptcy attorney. It most likely will involve filing a motion in bankruptcy to incur new debt. In order for the new debt to be authorized the trustee or the bankruptcy court handling your case will typically look at whether the situation was an actual emergency, the amount of the new loan and its impact on your repayment plan, and whether the loan is secured or unsecured.
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Converting To A Chapter 7 Case To Avoid A Dismissed Chapter 13 Case
Depending on why youâre at risk of having your Chapter 13 case dismissed, you may be able to convert it to a Chapter 7 case. Most bankruptcy courts allow you to do so by filing a simple ânoticeâ and paying a small conversion fee.
Whether conversion is an option depends on your situation. For example, if youâre unable to stay in the Chapter 13 payment plan because youâve lost your job and itâs not looking like youâll be able to get anything comparable anytime soon, you likely qualify for Chapter 7 relief even if you didnât when the case was first filed.
Of course, you want to make sure that you will not have any other problems when converting to a case under Chapter 7 to avoid a dismissed Chapter 13 case. If youâre behind on your mortgage payments or have property with non-exempt equity, you could face losing this property in a Chapter 7 case.
Federal Tax Refunds During Bankruptcy
You can receive tax refunds while in bankruptcy. However, refunds may be subject to delay or used to pay down your tax debts. If you believe your refund has been delayed or offset against your tax debts you can check on its status by going to our Wheres My Refund tool or by contacting the IRS Centralized Insolvency Operations Unit at 1-800-973-0424. The unit is available Monday through Friday from 7:00 a.m. to 10:00 p.m. eastern time.
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Chapter 13 Vs Chapter 7
Unlike Chapter 13, Chapter 7 requires no repayment plan. Instead, your nonexempt assets can be seized by a Court-appointed bankruptcy trustee and sold, or liquidated, to pay your debts. You can convert your Chapter 13 case to a Chapter 7 case by filing a motion to convert in bankruptcy Court, but you must first qualify for Chapter 7. You will qualify if you earn less than your states median income for a family of the same size as yours. If you earn more, the Court may require you to pass a means test based on your disposable income, which is your total income minus allowable deductions.
Chapter 13 Bankruptcy In Florida
Chapter 13 bankruptcy is a court-supervised payment plan whereby the bankruptcy debtor pays his secured and unsecured a monthly amount based upon the debtors family income and reasonable expenses. The amount of monthly payments and the amounts paid to various creditors makes up the debtors Chapter 13 plan.
A Florida Chapter 13 has some advantages over a Chapter 7 bankruptcy. The debtor does not have to liquidate assets in Chapter 13 as he does in Chapter 7. Chapter 13 bankruptcy permits debtors to modify or eliminate some secured debts. Chapter 13 is used to stop a mortgage foreclosure and permit the debtor to catch up past due mortgage payments. Also, Chapter 13 permits discharge of some unsecured debts not dischargeable in a Chapter 7.
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Dismiss Your Case And Refile
If none of the options above allow you to meet your goals, you can always let the court dismiss your case and refile another Chapter 13 bankruptcy. This might be your best option if you can’t afford your Chapter 13 plan payment right now and a Chapter 7 bankruptcy doesn’t make sense.
Once your financial situation improves, you can file another Chapter 13 to pay your debts. But keep in mind that the automatic stay isn’t always put in place when you file successive bankruptcy cases. Depending on when you file, you might have to ask the court to extend the automatic stay in your matter.
Trustee’s Motion To Dismiss Chapter 13 For Non
Legal Guidance for Montgomery Residents Pursuing Bankruptcy
It is important from the outset to propose a Chapter 13 debt repayment plan to which you can afford to pay. However, there are some life-changing events that may change a debtor’s ability to stick to a particular repayment plan, such as a medical emergency, job loss, or divorce. You will not be able to obtain a bankruptcy discharge under Chapter 13 if you do not make timely monthly payments according to the terms of your confirmed debt repayment plan, so it is important to schedule an appointment with your attorney in order to evaluate your options if a major event occurs during your Chapter 13 payment plan. A bankruptcy trustee can move to dismiss your Chapter 13 bankruptcy for non-payment. If the court grants this motion, you will lose the protection of your bankruptcy proceedings. The automatic stay will be lifted, you will not receive a discharge, and creditors can proceed with their collection efforts. To avoid this grim prospect, you should consult a bankruptcy attorney at Grainger Legal Services. We have assisted many Montgomery residents and others with pursuing a fresh financial start.
Trustee’s Motion to Dismiss Chapter 13 for Nonpayment
How should you respond to a trustee’s motion to dismiss your Chapter 13 case? If the trustee is correct that you have failed to make payments and you want to proceed with your case, you will need to catch up with any overdue payments.
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Consequences If You Don’t Make Your Plan Payments And How To Save Your Bankruptcy
Updated By Cara O’Neill, Attorney
Defaulting on your Chapter 13 plan has many unfortunate consequences. It can lead to your creditors obtaining permission from the court to foreclose on your house or repossess your car. Or the court might dismiss your case or never approve it in the first place. Learn about some of the possible consequences you could run into if you don’t make a Chapter 13 repayment plan payment, as well as options to save your bankruptcy.
Modifying A Repayment Plan
If you cannot keep up with payments and do not anticipate the situation changing, you can try to work out a modified repayment plan with the trustee that involves a reduced monthly payment. Some payments under a Chapter 13 repayment plan are mandatory, so you will not be able to modify your plan if you can no longer pay off these types of debts.
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The Additional Step: Filing An Adversary Proceeding
Here’s where things get more complicated. As stated earlier, just filing for bankruptcy under either Chapter 7 or Chapter 13 is not enough to have your student loans discharged. You must take the additional step of filing an adversary proceeding.
Under the U.S. bankruptcy code, an adversary proceeding is a proceeding to determine the dischargeability of a debt. In other words, it’s a lawsuit within a bankruptcy case. Included in the adversary proceeding paperwork is “a complaint.” The complaint includes administrative details, such as your bankruptcy case number, along with the reasons you are seeking to discharge your student loans in bankruptcythe circumstances of your undue hardship.
Thisadditional step is necessary because student loans and a few other types of debt have stricter requirements for discharge than credit card debt, for example. These requirements are described in section 523 of the U.S. bankruptcy code. The keywording that relates to the discharge of student loans is: A discharge under…this title does not discharge an individual debtor from any debt…unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtors dependents.” Note the words “undue hardship,” which is discussed below.
How Does A Chapter 13 Bankruptcy Plan Work
You are eligible to file for chapter 13 bankruptcy protection if your unsecured debts total less than $419,275 and your total secured debts are less than $1,257,850. The government also regularly adjusts those limits for inflation.
You should also have filed your tax returns for the previous four years. And you would have to attend credit counseling before filing for the bankruptcy.
Once you file your petitionalong with a repayment planwith a bankruptcy court, a trustee will step in to handle the case. This trustee will hold a meeting of your creditors and you will have to answer questions, under oath, that they and the trustee might pose to you. After that, the court will hold a hearing about your chapter 13 bankruptcy case.
This type of bankruptcy is also called a wage earners plan since it applies to those who get a monthly income to develop a plan to get out of their debt. Your plan will allow you to make these regular payments over a period ranging from three to five years.
If your income is below your states median income, your plan will run three years. In cases where the debtors income is higher than the state median income, the plan period will run five years. You will be allowed to keep the funds you require from your income to pay your reasonable living expenses. The remainder of your income, which is your disposable income, will go toward paying off your debts.
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How To Follow The Repayment Plan
Once your plan is approved, most of your payment interactions should take place with your bankruptcy trustee. This individual is appointed shortly after the initial bankruptcy filing and essentially acts as a go-between for you, the bankruptcy court and your creditors.
Your payment goes to the trustee on the approved schedule , and they are responsible for dividing it among your creditors as detailed in the repayment plan.
Not following through on the plan could complicate your bankruptcy case. Missing or stopping payments could lead to the court dismissing your bankruptcy essentially canceling it. In that case you could end up back where you started, or your bankruptcy could be converted into a Chapter 7 bankruptcy that doesnt allow you to keep certain assets.
To avoid that result, its probably a good idea to put your monthly plan payments on autopay or even a payroll deduction to make sure theyre all made on time.
If you make all payments according to the plan, you will be on the road to repaying your debts by the end of the repayment plan, which can help your chances of earning a bankruptcy discharge.