C Chapter 13 Bankruptcy Requirements
The requirements for a Chapter 13 bankruptcy are similar to those of a Chapter 7 bankruptcy, but instead proof that you will be able to repay creditors is required. To file a Chapter 13 bankruptcy, a filer must:
- Be an individual 11 U.S.C. §;109
- Develop a plan to pay creditors in installments over the course of 3-5 years and have sufficient income to repay creditors as laid out in their monthly payment plan 11 U.S.C. § 1322
- As of April 2019, have unsecured debts less than $419,275 and secured debts less than $1,257,850 11 U.S.C. §;109
- Provide proof that you filed state and federal income tax returns for the last 4 years 11 U.S.C. § 1308
- Wait 181 days to file if the filer previously attempted to file for bankruptcy but had the petition dismissed for failure to appear, failure to comply, or the filer voluntarily dismissed the case 11 U.S.C. §§;109, 362 and
- Take an approved credit counseling course within 180 days of filing for bankruptcy 11 U.S.C. §§;109, 111
Three Types Of Bankruptcy
There are three types of bankruptcy, personal, small business and corporate. But despite being designated as their own type, personal and small business bankruptcies are essentially the same thing. Note that this is only true if the small business is set up as partnership or sole proprietorship, not if it is incorporated.
Before you can declare any type of bankruptcy in Canada, you need to work with a Licensed Insolvency Trustee, who will assess your financial situation and recommend which type of bankruptcy you may qualify for.
There are some basic, general qualifiers that set the parameters for whether or not youll be able to declare bankruptcy, including:
- You must be a Canadian resident
- You must owe more than $1000 to creditors
- Your debts are greater than the value of your assets and/or you are not be able to pay your bills when they are due
Benefits Of Filing For Chapter 13 Bankruptcy
If you are in a position to take advantage of chapter 13 and you can afford to wait through a longer bankruptcy process, you may want to consider several of its benefits, including:
- Less impact to your credit score, compared to chapter 7
- No liquidation of your assets
- A stop to the foreclosure process, if you are a homeowner who is behind on your mortgage
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Acceptance Of The Plan Of Reorganization
As noted earlier, only the debtor may file a plan of reorganization during the first 120-day period after the petition is filed . The court may grant extension of this exclusive period up to 18 months after the petition date. In addition, the debtor has 180 days after the petition date or entry of the order for relief to obtain acceptances of its plan. 11 U.S.C. §;1121. The court may extend or reduce this acceptance exclusive period for cause. 11 U.S.C. §;1121. In practice, debtors typically seek extensions of both the plan filing and plan acceptance deadlines at the same time so that any order sought from the court allows the debtor two months to seek acceptances after filing a plan before any competing plan can be filed.
If the exclusive period expires before the debtor has filed and obtained acceptance of a plan, other parties in interest in a case, such as the creditors’ committee or a creditor, may file a plan. Such a plan may compete with a plan filed by another party in interest or by the debtor. If a trustee is appointed, the trustee must file a plan, a report explaining why the trustee will not file a plan, or a recommendation for conversion or dismissal of the case. 11 U.S.C. §;1106. A proponent of a plan is subject to the same requirements as the debtor with respect to disclosure and solicitation.
Filing False Or Incomplete Forms
Another form of bankruptcy fraud is intentionally filing false or incomplete forms.
Filing bankruptcy requires that you provide a complete and correct list of your assets, your debts, and your current financial status.
Bear in mind bankruptcy proceedings are filed under the penalty of perjury.
Therefore, make sure you double check all information and the completeness of your forms to avoid encountering any problems.
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Chapter 13 Bankruptcy Repayment Plans
Chapter 13 of the bankruptcy code allows wage earners to discharge some or all of their debts by completing a three- to a five-year repayment plan. The length of the schedule depends on your income. If you earn less than the median in your state, the bankruptcy will last three years. If you earn more than similar households, the court can set a five-year term.
Compared to Chapter 7, the process is longer. The advantage is that you can keep your property. The wage earners bankruptcy stops the foreclosure process if youre behind on your mortgage payments. Youll also be able to keep your home and catch up on the late payments gradually.
Should You File An Individual Or Joint Bankruptcy
If you are married, you can choose to file for bankruptcy jointly with your spouse or individually. In general, filing for bankruptcy together makes sense if you have a lot of joint debts and your state allows you to double your bankruptcy exemptions in a joint filing.
However, individual bankruptcy might be in your best interest if:
- only one spouse has debt
- one spouse has nonexempt separate property that may be at risk in bankruptcy , or
- your state doesn’t allow married couples to double their exemptions in a joint case.
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Appointment Or Election Of A Case Trustee
Although the appointment of a case trustee is a rarity in a chapter 11 case, a party in interest or the U.S. trustee can request the appointment of a case trustee or examiner at any time prior to confirmation in a chapter 11 case. The court, on motion by a party in interest or the U.S. trustee and after notice and hearing, shall order the appointment of a case trustee for cause, including fraud, dishonesty, incompetence, or gross mismanagement, or if such an appointment is in the interest of creditors, any equity security holders, and other interests of the estate. 11 U.S.C. §;1104. Moreover, the U.S. trustee is required to move for appointment of a trustee if there are reasonable grounds to believe that any of the parties in control of the debtor “participated in actual fraud, dishonesty or criminal conduct in the management of the debtor or the debtor’s financial reporting.” 11 U.S.C. §;1104. The trustee is appointed by the U.S. trustee, after consultation with parties in interest and subject to the court’s approval. Fed. R. Bankr. P. 2007.1. Alternatively, a trustee in a case may be elected if a party in interest requests the election of a trustee within 30 days after the court orders the appointment of a trustee. In that instance, the U.S. trustee convenes a meeting of creditors for the purpose of electing a person to serve as trustee in the case. 11 U.S.C. §;1104.
As discussed above, a trustee is appointed in each subchapter V case. 11 U.S.C. §;1183.
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Chapter 13 Bankruptcy Process
Though it is possible to file bankruptcy yourself, the first step in the process should be to hire a bankruptcy lawyer. There are so many laws and exceptions involved that it pays to seek experienced professional help.
The attorney will handle the bankruptcy proceedings, but it is important to know that there is a $310 court fee to file for bankruptcy and another $3,500-$5,000 for attorneys fees.
Court fees are considered priority debt along with child support, alimony and taxes. Money is allocated to priority debts first, then secured debts such as mortgages and auto loans, and finally unsecured debt like credit cards and personal loans.
Information you need on hand:
- List of creditors and the amount you owe
- The source of your income and the amount you earn
- List of property you own
- Living expenses
- Copy of most recent federal tax return
- After filing, the petitioner proposes a repayment plan in a hearing with a bankruptcy judge to determine if the plan is fair and meets the requirements.
If the plan is approved, the debtor makes routine payments to a court-appointed trustee, who distributes the money to the creditors.
A History Of Bankruptcy
The concept of bankruptcy is not new; in fact, records of debt forgiveness date back to ancient Hebrew society. The term bankruptcy is derived from medieval and Renaissance Italy. The Italian banca rotta translates to broken bench, which referred to Italian merchants who worked from a market stall or bench. If a merchant ran out of money and failed to pay his debts, his creditors would come and break his bench. This prevented the merchants from being able to work and visibly marked that they had failed to pay. The concept of discharging a debt did not appear in English bankruptcy law until the 1700s and the US did not pass a formal, uniform bankruptcy act until 1898. Finally, the Bankruptcy Reform Act of 1978 replaced this and became the basis for todays United States Bankruptcy Code.
Is Chapter 7 Right For Me
Every person or family has a very unique set of circumstances, so there is no one size fits all answer to this question.; However, Chapter 7 bankruptcy may be a good option for you if you:
- Are being harassed by multiple creditors on a daily basis?
- Are living from paycheck to paycheck and cannot pay your bills?
- Are getting notices that your mortgage or loans are being foreclosed?
- Are receiving threats that your car is going to be repossessed?
- Are experiencing a major financial setback such as divorce, job loss or a costly illness?
- Do not have sizable assets or secured loans and simply need a fresh start?
How Creditors Are Paid In A Chapter 7 Bankruptcy
Unsecured creditors only receive money if the filer has nonexempt property, which is rare. Taking away a filerâs property does not match up with the Bankruptcy Codeâs intended purpose: To give the honest but unfortunate debtor a fresh start. Thatâs why bankruptcy laws allow debtors to protect their property using exemptions.
These exemptions are based either on state law or federal law, including the U.S. Bankruptcy Code. Some states require their residents to use state law to protect exempt property. Others allow filers to choose the federal bankruptcy exemptions instead.
Most exemptions protect your typical âstuffâ usually up to a certain amount. Things like furniture, clothing, tools of the trade, and cars are generally protected by an exemption. The same is true in most states for equity in real estate that is used as a home.
Some states and the federal bankruptcy laws include a wildcard exemption. This type of exemption can be used to protect property of any kind.
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What Is Chapter 7 Bankruptcy
Chapter 7 is known as clean slate bankruptcy because it allows you to discharge certain types of debt immediately. However, it is also called liquidation bankruptcy, because you may have to sell certain assets to partially repay your creditors before the court discharges your remaining debt.
Fortunately, the law contains many exemptions that allow you to keep a certain amount of property in several categories, such as:
- Homestead You may exempt up to $150,000 in real property.
- Household furnishings You may hold furnishings worth up to $6,000 at fair market value.
- Vehicle You may exempt the equity in one car up to $6,000, or $12,000 if you are physically disabled.
Other exemptions are available for fuel, food, clothing, musical instruments, pets and domesticated animals, engagement and wedding rings, books, technology, and more.
Although Chapter 7 is the quickest way to discharge unsecured debt, such as credit card balances and medical bills, there are certain debts you cannot discharge through bankruptcy, including most tax debt and past-due alimony and child support.
Chapter 7 Bankruptcy: Liquidation
The basic idea with a Chapter 7 bankruptcy is that your assets are sold to pay your creditors.; You are assigned a trustee, who evaluates your property to see if there is anything valuable enough to be sold.; Some property is considered exempt from the creditors reach, while other property is non-exempt, meaning that it can be sold to repay creditors.
People often assume that exempt items are simply things that are important, like a house or a car.; Contrary to popular belief, its not always that cut and dry; exemptions are actually dollar amounts.; If your assets are worth more than the exemption dollar amount, the item can be sold, and the court will give you the cash value of the exempted amount.
For example, if you have $2,000 in home equity, and the federal exemption laws allow you to have $21,625, your house would be exempt from the creditors.; However, if your house has $50,000 in equity, only $21,625 would be considered exempt.; Thus, the house would be sold and you would be allowed to keep $21,625, while $28,375 would go to your creditors.; Exemption laws are guided by the state in which you reside.
In most states, Chapter 7 bankruptcy will stay on your credit report for 10 years from the date filed.
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Chapter 13 Bankruptcy Repayment Plan
Chapter 13 debtors create their own repayment plan, which must be written and submitted to the bankruptcy court at the outset of your case. The federal bankruptcy court provides a form for drafting a plan, or you can obtain one from a lower court in your area. The bankruptcy court must approve your plan for you to enter Chapter 13. The plan details your income, property, expenses and debts and includes a proposed payment plan.
A trustee will be assigned to review your plan, assess its compliance with bankruptcy laws, collect your payments and distribute them to creditors, and make sure all terms in your bankruptcy repayment plan are followed.
Your repayment plan will be divided into categories, which include:
Management Before And During Bankruptcy
Financial Management before and during Bankruptcy is an effective method for companies and individuals to remedy financial distress and insolvency. However, it has the disadvantage of making it more difficult for an individual to borrow in the future and companies that are reorganized and not dissolved face the risk of higher costs of capital for future operations after emerging from bankruptcy. To avoid the negative impacts of bankruptcy, individuals and companies in financial distress have a number of bankruptcy alternatives.
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What To Do If You Have Too Much Debt
If your debt feels overwhelming, there are a few options you might have. Some of these paths include:
- Negotiating directly with creditors. Creditors would rather get some of the money you owe, rather than risk getting nothing . Be transparent about your financial situation, and see if theyre willing to work with you on a payment plan, debt amount reduction or other solution.
- If you feel like you need more guidance, a nonprofit agency can help. Theyll help stop collection calls and create a debt management plan thats sustainable for your financial situation. You can find out more from the National Foundation for Credit Counseling.
- Bankruptcy. Filing for bankruptcy is an option if youve tried all other ways to address your debt. This path has long-lasting effects on your credit record, and can adversely affect your credit anywhere from seven to 10 years.
How Chapter 11 Works
A chapter 11 case begins with the filing of a petition with the bankruptcy court serving the area where the debtor has a domicile, residence, or principal place of business. A petition may be a voluntary petition, which is filed by the debtor, or it may be an involuntary petition, which is filed by creditors that meet certain requirements. 11 U.S.C. §§;301, 303. A voluntary petition must adhere to the format of Form B 101 of the Official Forms prescribed by the Judicial Conference of the United States. Unless the court orders otherwise, the debtor also must file with the court:
If the debtor is an individual , there are additional document filing requirements. Such debtors must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts. 11 U.S.C. §;521. A married couple may file a joint petition or individual petitions. 11 U.S.C. §;302.