Chapter 13 Bankruptcy What Exactly Does It Mean
By | Submitted On April 25, 2007
Chapter 13, Title 11, United States Code, this section of bankruptcy refers to the way an individual person can choose to go through a reorganization that is lead by the federal bankruptcy court. The Bankruptcy Code says that the ultimate goal of Chapter 13 is to allow debtors who have a steady income to agree to a court supervised repayment plan. Individuals can only file Chapter 13 or Chapter 7, the choice is theirs which one would be more beneficially to them and their situations. With Chapter 7 they court liquidates the assets and pays the creditors and it is over but with Chapter 13, the courts give you between 3 and 5 years to repay the payment reorganization plan.
While the agreement says once a debtor has agreed to a Chapter 13, the creditor is not allowed to contact the debtor and try to collect money from them. The creditor has to collect through the courts. The debtor gets to keep their property and the creditors get less money than what they are owed. But that is why we claim bankruptcy if we could afford to pay the balance we would.
Things cannot be discharged are recent taxes, trust fund taxes, child or family support orders, criminal fines or restitutions, accidents that involved DWI or DUI and Student loans, as you can see there are many bills that will be allowed to be taken care of in the event of a bankruptcy. Sometimes things happen and you can get buried and that is why these laws exist.
The Court Does Protect Shareholders
Under Chapter 11, the court also creates a committee that is in charge of representing all shareholders and creditors of the company to ensure a fair reorganization. The company, alongside this committee, must then create a reorganization plan that the court approves. Also, creditors, bondholders, and shareholders can have a say in the reorganization plan especially contesting it if they feel it does not address them equally.
Bondholders of a company in reorganization will not receive coupon payments or repayments. The companys bonds are also downgraded under Chapter 11 to speculative-grade bonds. Most investors will not purchase these bonds, and if they are willing to take the risk, they will only do so after a substantial discount is applied.
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Secured Debt Payments On Property You Want To Keep
If you want to keep your home or car, you’ll have to keep current on your mortgage and car loan payments. Sometimes you pay these through the plan. Other times you pay the lender directly. The same goes for other secured property. Add these monthly figues to your monthly payment for priority debts and arrearages.
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What Is A Chapter 13 Bankruptcy
Unlike a Chapter 7, where most debts are canceled, a Chapter 13 bankruptcy requires the debtor to repay some or all of the debt according to a repayment plan.The repayment process can last 3-5 years. To qualify, the debtor must have a regular source of income in order to make repayments. Income includes wages, as well as retirement, social security, and disability benefits. In a Chapter 13, a bankruptcy trustee is appointed to investigate your finances, make sure your plan is fair, address your creditors claims, and pay down your debts according to the plan. Your payments go to the trustee, who withholds 10% as a fee and sends the rest to your creditors. At the end of a Chapter 13 bankruptcy, the balance of unsecured debts will be discharged.
If Youre Filing For Chapter 13 Bankruptcy A Chapter 13 Repayment Plan Could Be The Legal Tool That Puts You On A Clear Path Toward Getting Out Of Debt
The repayment plan is like a personalized road map for paying off some or all of your debts in a Chapter 13 bankruptcy, and it works somewhat like a short-term consolidation loan. The plan helps you to restructure your debts for one bimonthly or monthly payment based on a number of factors, including the total sum of your eligible debts, your household income and various potential deductions for items like cost-of-living expenses and required tax payments.
The plan is then submitted to the bankruptcy court for approval, at which time the judge and your creditors will have the chance to challenge it.
If your plan is approved and you make three to five years of regular payments according to the plan, some or all of your remaining debts may be discharged, and your debt picture could be much brighter.
Read on for more info on how a Chapter 13 repayment plan works, how to work through the forms and how to maximize your chances of following the plan during the repayment period.
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Chapter 13 Is Better If
you want to keep property thatâs not protected by an exemption,
youâre behind on your mortgage and want to catch up,
you have debts that canât be discharged,
you have a car loan with a high interest rate or negative equity from a trade-in
you have multiple mortgages
you owe money to your ex-spouse from a property settlement
Of course, life isnât always that clear cut, so itâs also important to consider the downsides when weighing your bankruptcy options.
Black Debtors Are Far Less Likely To Receive Debt Relief
One of the most alarming trends relating to Chapter 13 is the data showing that is not applied evenly.
Across the country, the odds of black debtors choosing Chapter 13 instead of Chapter 7 are over twice as high as for white debtors with a similar finances. And once black debtors chose Chapter 13, the odds of their cases being dismissed â with no relief from their debts â were roughly 50 percent higher.
That doesnât mean that Chapter 13 has a racial bias – it clearly doesnât. But it does mean that the law may be applied unevenly in ways that are important to consider before filing.
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How Is A Chapter 11 Different From A Chapter 13
Chapter 11 bankruptcy can be filed by individuals, married couples, corporations, partnerships, and other types of business entities. Chapter 13 bankruptcy can only be filed by individuals and married couples. Chapter 13 is designed for people who need bankruptcy protection, not businesses.
Under the Bankruptcy Code, Chapter 13 is an adjustment of debts of an individual with regular income. Chapter 13 bankruptcy requires a filer to have regular income to be able to make a monthly plan payment. On the other hand, Chapter 11 bankruptcy allows for a plan of reorganization or liquidation, and it isnt always necessary for a Chapter 11 filer to have regular income.
Further, the Chapter 13 process is much more streamlined. The Bankruptcy Code requires a Chapter 13 plan to last 3 to 5 years depending on the filers income. A Chapter 11 bankruptcy is less structured and may last a shorter or longer time than a Chapter 13. Further, the contents of a Chapter 13 plan can be a lot less detailed than the contents required in a Chapter 11 plan. Also, Chapter 13 does not require the in-depth disclosure statement required in a Chapter 11 bankruptcy case.
Another way Chapter 11 is different from Chapter 13 is that a standing trustee administers all Chapter 13 cases. The Bankruptcy Code requires that a trustee be appointed to the case. Chapter 11 has no such requirement and allows the filer to act as debtor in possession, essentially filling the role of the trustee.
Mandatory Courses And Filing Fees
When you file your official bankruptcy forms with the court clerk, you’ll pay a bankruptcy filing fee and present a certificate demonstrating that you received the mandatory credit counseling education from an agency approved by the United States Trustee’s office. The session helps evaluate whether you have sufficient income to repay your creditors. You’ll take a second “debtor education” course after filing your case.
You should expect to pay a fee of between $25 and $35 per course because while providers must provide counseling for free or at reduced rates if you cannot afford to pay, Chapter 13 filers rarely qualify for the discount. You’ll find a list of approved credit counseling and debtor education agencies on the U.S. Trustee’s website.
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Success Rate For Chapter 13 Bankruptcy
Consumers should be aware that there is less than 50-50 chance filing for Chapter 13 bankruptcy will be successful, according to a study done by the American Bankruptcy Institute .
The ABI study for 2019, found that of the 283,313 cases filed under Chapter 13, only 114,624 were discharged , and 168,689 were dismissed . Thats a success rate of just 40.4%. People who tried representing themselves call Pro Se filing succeeded just 1.4% of the time.
Pros And Cons Of Chapter 13 Bankruptcy
Chapter 13 bankruptcy is an option to consider for those in tight financial situations. There are benefits and drawbacks to filing for Chapter 13 bankruptcy, though, and it will be important to consider these points when making the decision to file. In todays blog, we discuss these particular pros and cons of filing for Chapter 13 bankruptcy and how your situation might affect your decision.
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Why Was Your Chapter 13 Bankruptcy Dismissed And What Does That Mean
As to the limitations on a Chapter 13 bankruptcy, your debt has to be under $394,725 in unsecured loans and less than $1,184,200 in secured loans for chapter 13 help to be permitted.
Loans against houses and cars are the most common examples of secured loans.
Unsecured loans are oftentimes best handled through a Chapter 7. When you want to protect the amount of allowed equity in your home, up to a little over $25,000 per debtor, Chapter 13 can help.
Some debts cannot be discharged in a Chapter 7 case. Debts arising from outstanding alimony, child support, and arrearages owed to the IRS are non-dischargeable. This avoids protection for those who would allow such debts to accumulate intentionally and in bad faith. Under the right circumstances, however, portions or all of these debts may be dischargeable in Chapter 13.
Once you are successful in getting a Chapter 13 discharge, remaining non-secured debts for which you do not have disposable income to pay are forgiven, with the exception of student loans .
Chapter 13 gives the debtor a 3-5 years to make payments, including what may be discounted amounts on installment loans, while some debts may be kept current outside of the Bankruptcy Plan.
In chapter 13, the amount of your payment each month is determined by the types of debts and your disposable income.
Often times a dismissed Chapter 13 case can be revived. Get legal help before taking No for an answer.
Should I File Chapter 13 Bankruptcy
Entering bankruptcy is a major financial decision with consequences that can impact your creditworthiness for years. Though local, state and federal government agencies cant consider bankruptcy when deciding whether to hire you, private employers face no such restriction. Given the gravity of the decision, it pays to explore all options before filing a bankruptcy petition.
InCharge Debt Solutions, a nonprofit credit-counseling and debt-management firm, offers a variety of services to help you make the best decision. If you decide that bankruptcy is the best option for you, InCharge can help you through the process. It provides approved bankruptcy education courses and offers both pre-filing and pre-discharge bankruptcy education through its PersonalFinanceEducation.com website.
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If You Can’t Make Plan Payments
A lot of financial changes can occur over the course of your plan. But that doesn’t mean you’re out of the plan automatically.
If, for example, your income decreases, you might be able to modify the amount being paid to your unsecured creditors. If, however, you can’t pay a required debt, the court might let you discharge your debts due to hardship. Examples of hardship would be a sudden plant closing in a one-factory town or a debilitating illness.
If neither options are feasible, you might be able to convert to a Chapter 7 bankruptcy. Keep in mind, however, that there’s a good chance that you’d lose your nonexempt property. The other option is to dismiss your Chapter 13 bankruptcy case. The downside to this approach is that you would still owe your outstanding debt balance, plus any interest creditors didn’t charge during your Chapter 13 case.
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How Do I Apply For Bankruptcy
The unfortunate reality of bankruptcy is that it will cost some moneymore if you hire legal help, which you probably should . All filings have to go through U.S. bankruptcy courts, where the cost to file is $335 for Chapter 7 and $310 for Chapter 13. However, you can ask the court to either waive your fee or let you pay with monthly installments. You’ll also have to take debtor education courses if you file on your own.
And that’s just the beginning. There’s a list of documents you’ll need to take care of, as well as the specific repayment proposal you need to submit for Chapter 13. That proposal gets reviewed by a court-appointed trustee, who contacts your creditors before approving your submission. Overall, neither filing is an easy process to handle on your own, and even minor mistakes on your end could be a setback for your case.
So, whether you file for Chapter 7 or Chapter 13 bankruptcy, it’s typically a good idea to hire a lawyer to help you petition. A bankruptcy attorney’s price depends on the nature and complexity of your filing, with Chapter 13 filings on the pricier end, but the price tag doesn’t necessarily mean a lawyer is out of the question for you. Discuss payment plans with potential attorneys, check out local pro-bono lawyers and legal aid offices, or use an online tool like Upsolve to cover your bases when it comes to bankruptcy.
Section 341 Meeting Of Creditors And Trustee
The debtor and his attorney are required to attend a meeting with the Chapter 13 bankruptcy trustee or the trustees attorney approximately four weeks after the bankruptcy filing date. The meeting is held in a meeting room not a courtroom and the federal bankruptcy judge is prohibited by law from being there. Typically, this meeting will last about five to ten minutes. Creditors rarely attend.
At the , the Chapter 13 trustee or his attorney will ask the debtor questions, but they will not interrogate, cross-examine, or threaten the debtor. The trustee may give the debtor payment envelopes with the trustees mailing address for future plan payments . The trustee may suggest changes to the debtors initial Chapter 13 plan. Most debtors submit one or more amended plans during the Chapter 13 bankruptcy as creditors file their claims.
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Can I Keep My Home If I File For Chapter 13 Bankruptcy
Filing for Chapter 13 prevents a mortgage lender from proceeding with foreclosure. If your Chapter 13 petition is approved, your lender must allow you to attempt repayment as outlined in your repayment plan.
If under your repayment plan you are able to repay any overdue payments and stay current with ongoing mortgage payments you will be able to avoid foreclosure.
Pros Of Filing Chapter 11 Bankruptcy
As previously stated, this type of bankruptcy gives the debtor a chance to reorganize debts. After filing a Chapter 11, the bankruptcy court issues an automatic stay that keeps creditors from attempting to collect repayment from the business. While the automatic stay is in place, the debtor works on a repayment plan.
A chapter 13 bankruptcy lawyer can help you make a plan that typically includes reduced amounts owed or reduced interest rates.
Meamnwhile, the repayment plan under Chapter 11 is called a reorganization plan. The businesss goal is to stay profitable while paying back debts, so they try to renegotiate contracts, leases, or other debts in order to get amounts reduced or discharged. Creditors are generally receptive to the repayment plan because they often get a payment plan that is more favorable than what they would get under Chapter 7.
Under the reorganization plan, creditors are placed in different classes with different priorities. Those that are the first priority would include state or federal tax agencies and unpaid employee wages or stock options. Each secured creditor is placed in its own class, and unsecured creditors are collectively placed in one class. Once the plan is confirmed by the court, the debtor is required to make all the payments to creditors as outlined in the reorganization plan.
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