Chapter 13 Bankruptcy
Difficult times call for difficult decisions. Chapter 13 is a type of reorganization bankruptcy designed exclusively for people and focuses on individuals and couples who are struggling financially.
Because each bankruptcy case is unique, filing for Chapter 13 can be risky if you don’t have proper planning, consideration, and experience. The Chapter 13 bankruptcy lawyers at Middlebrooks Shapiro, P.C. are here for you. They’ll listen to you, focus on the big picture, and give the guidance you need to get through this very difficult time.
Ready for a fresh start? Let us help you. Schedule your free Chapter 13 bankruptcy consultation today!
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy provides people with a federal court structure to keep assets like their home, reduce their debt, and to catch up on their back mortgage, car, and tax payments over a 36-60 month period.
Just like Chapter 7 “liquidation” bankruptcy, Chapter 13 includes an automatic stay and results in the entry of a discharge order. Alternatively, many individuals and couples choose Chapter 13 over Chapter 7 in order to protect their valuable assets, catch up on mortgage payments, pay back certain priority debt, such as taxes, and reduce their unsecured debt like credit cards and medical bills. Some people with income too high for Chapter 7 resort to Chapter 13.
Chapter 13 also includes “super discharge” provisions not available in other chapters. You may qualify for Chapter 13 if you have a regular source of income and you don’t exceed certain debt limits.
Do I Qualify For Chapter 13 Bankruptcy?
For People Only
To qualify for Chapter 13, you must be an individual or married couple filing a joint petition. A sole proprietorship may qualify if they are really just a person operating a business under their own name or under a trade name. Businesses and other types of companies, however, are not eligible for reorganization under Chapter 13. You can still reorganize and discharge your personally-guaranteed business debt and business-related obligations such as commercial leases.
The Bankruptcy Code includes limits on the amount of debt that you can reorganize in Chapter 13. Your secured debts and unsecured debts must be under certain amounts before you file Chapter 13. Current debt limits are $394,725 of unsecured debt, and $1,184,200 in secured debt. If the amount of your debts makes you ineligible for Chapter 13, you may still qualify for Subchapter V bankruptcy, or for standard Chapter 11 bankruptcy.
Regular Source of Income
Chapter 13 has been referred to as a “wage earners” bankruptcy. To confirm a Chapter 13 plan, you must have a source of income to make monthly payments to a Chapter 13 Trustee. In most cases, people rely upon their wages from their jobs and their source of income to support their Chapter 13 plan. However, you may be able to rely upon alternative and additional sources of income, such as contribution from friends and family, insurance and inheritance proceeds, sale of a home or other asset, or any other source of income or funding.
If your source of income is not enough to support your plan requirements, you may not be able to propose and confirm a “feasible” Chapter 13 plan. If your source of income is large and provides you with a large amount of disposable income each month, you may end up proposing a 100% distribution to your creditors through your Chapter 13 plan.
Filing, confirming and completing a Chapter 13 bankruptcy case is much more complicated than Chapter 7. Chapter 13 can even be confusing for lawyers who don’t practice bankruptcy law, or who focus on other aspects of bankruptcy law. Here’s an overview of the main steps in Chapter 13.
Pre-Filing Credit Counseling
Like in other chapters, you must complete a pre-filing bankruptcy credit counseling course before starting your Chapter 13 case. This is sometimes referred to as credit counseling. Credit counseling must take place before you file your petition with the bankruptcy court. You may complete credit counseling online or over the telephone through a provider that is approved by the United States Trustee Program.
You should anticipate paying between $15.00 to $35.00 for your credit counseling course. You should also anticipate spending about 60 minutes to complete the course. While the credit counseling course is fairly simple to complete, you must ensure that you complete it in a timely manner and file the proper form with the bankruptcy court.
Chapter 13 Bankruptcy Filing Fee
Currently, the bankruptcy court collects a $310.00 filing fee to start your Chapter 13 case. If you are working with a bankruptcy lawyer, expect to pay the Chapter 13 filing fee to your lawyer so they can electronically transfer it to the bankruptcy court at the time you file your petition. If you are representing yourself pro se, expect to pay the bankruptcy court by money order, certified check or bank check. Bankruptcy courts generally do not accept cash or personal checks. You may choose to apply to pay the $310.00 filing fee in up to 4 installments. Generally, a bankruptcy court will require 25% of the filing fee on the day you file your petition, with additional 25% installments until the full fee is paid. If you do not pay the filing fee in full in 120 days, your case may be dismissed by the bankruptcy court.
Chapter 13 Bankruptcy Petition & Schedules
To start your bankruptcy case you must file, at a minimum, an official voluntary petition for individuals form and certain other statements with the bankruptcy court. If you have filed an emergency bankruptcy petition, you have 14 days to file the balance of your petition and statements with the bankruptcy court.
Chapter 13 Bankruptcy Plan
The core of your Chapter 13 case is a plan of reorganization. A Chapter 13 plan sets forth the various ways you propose to pay off your debts, the sources of your plan funding, whether you intend to keep or surrender certain assets, and may incorporate special motions to reclassify certain debts.
A standard Chapter 13 plan form has been made available, but bankruptcy courts may require their own local Chapter 13 plan form, such as the Chapter 13 Plan and Motions released by the New Jersey Bankruptcy Court.
Chapter 13 Bankruptcy Trustee Plan Payments
You generally start making monthly payments to your Chapter 13 trustee in the first month following the filing of your petition.
341 Meeting of Creditors
Just as in other types of bankruptcy, a 341 Meeting of Creditors is required to take place in your Chapter 13 case.
Personal Financial Management Court
Like in other chapters, to be eligible for a discharge in Chapter 13, you must file a certificate with the bankruptcy court within 60 days after the first date set for the 341 meeting confirming that you completed the personal financial management course. This may also be referred to as the debtor education course. You can not complete the debtor education course at the same time as your credit counseling course. You may complete the debtor education course online or over the telephone through a provider that is approved by United States Trustee Program. You should anticipate paying between $15.00 to $35.00 for the debtor education course. You should also anticipate spending about 90 minutes to complete the course.
While the course is fairly simple to complete, you must ensure that you complete it in a timely manner and file the proper form with the bankruptcy court. Once you’ve received a certificate of completion, the correct certification must be completed and filed with the bankruptcy court.
Chapter 13 Bankruptcy Plan Confirmation
Your Chapter 13 trustee and your creditors will receive notice of your proposed Chapter 13 plan. They will have the opportunity to object to your proposed plan. The normal objections to expect from your Chapter 13 trustee include failure to provide sufficient proof of income or valuation, failure to propose a plan that pays enough to your unsecured creditors under the Bankruptcy Code, and failure to make plan payments pending confirmation or to appear at your 341 meeting.
In addition to your Chapter 13 trustee, secured creditors may object to your proposed treatment of their debt or liens in your Chapter 13 plan, such as that your plan to modify your mortgage is speculative, or that you’ve failed to make post-petition payments. In addition, your Chapter 13 trustee and creditors may object to confirmation of your Chapter 13 plan for eligibility reasons, such as the Chapter 13 debt limit or prior bankruptcy filings.
After you’ve made your final payment to your Chapter 13 trustee, you must file a form with the bankruptcy court confirming that you’re current on your child support and alimony obligations. After your Chapter 13 trustee has reported to the bankruptcy court that you’ve completed your Chapter 13 plan payments, and after you’ve filed required forms, the bankruptcy court should enter a discharge order in your case.
Once your discharge order is entered, you’ve been discharged of all of your dischargeable debt, which generally includes credit card debt, medical debt and other types of debt not secured by any asset. Other non-dischargeable debt, however, such as certain taxes, student loans and alimony or child support, is not discharged by entry of the discharge order.
In some instances, you can use a Chapter 13 to discharge debts that would otherwise survive your bankruptcy case. This is why a Chapter 13 discharge is sometimes referred to as a “super discharge.”
Examples include provisions that permit you to discharge civil fines and penalties and obligations created by a divorce decree that are not in the nature of alimony, maintenance, or support.
Many things can change over a 36-60 month period of a Chapter 13 plan. During a Chapter 13 case, it is normal for your income and expenses to change, and for you to experience other changes in your finances. Sometimes these changes make it difficult to continue making payments to your Chapter 13 trustee or to complete other plan provisions.
These instances may require amending your petition and modifying your Chapter 13 plan. It is important for you to proactively explore modifying your Chapter 13 plan so that you don’t default on your confirmed plan.
Chapter 13 provides you with a structure to keep certain assets like your home and car, to catch up on missed payments to secured creditors, and to continue paying your secured creditors until the debt is paid off. Chapter 13 also allows you to surrender assets back to secured creditors if you no longer want to keep them and to discharge your underlying obligation to your secured creditors.
However, whether you keep assets through your Chapter 13 plan and keep paying the underlying debt, or surrender assets through your Chapter 13 plan and discharge the underlying debt, secured creditors generally retain a lien on your assets.
About Middlebrooks Shapiro
At Middlebrook Shapiro, our attorneys have over 30 years of bankruptcy law experience. From our office in Springfield, NJ, we help clients with the most basic or complex personal and business bankruptcy cases by leading them through the legal process of numerous practice areas.
Call 973-218-6877 to speak with the experienced bankruptcy attorneys at Middlebrooks Shapiro. We’ll ensure you get the perspective you need to understand the full picture and the right guidance to have a successful bankruptcy, rebuild your credit, and move forward with your new debt-free life.