How Ch. 13 Bankruptcy Works

An Explanation of Chapter 13 Bankruptcy and the Filing Process

Although only about 30 percent of individuals who file for bankruptcy file under Chapter 13, there are a number of reasons why this chapter may be someone's best option. Unlike Chapter 7 bankruptcy, which requires the liquidation of a debtor's non-exempt assets with the proceeds going toward creditors, a Chapter 13 bankruptcy filing is a reorganization of debts under a court-approved repayment plan.

Payment plans are set up to last between three and five years and once this is completed, the remaining unsecured debt is normally discharged, although there are some exceptions. While each bankruptcy case differs, filings will generally proceed as follows.

Filing a Chapter 13 Petition

A Chapter 13 case begins with the filing of a petition in bankruptcy court. Along with the petition, debtors will need to make information related to their financial situation available to the court. They will also need to provide a certificate of completion of credit counseling, and if a debt repayment plan was written during the counseling session, they will also need to submit this to the court.

Administrative and Filing Fees

A case filing fee of $235 is required along with a $75 miscellaneous administrative fee. In most cases, payment is required upon filing; however, payment plans are available with the court's permission.

Information Required by the Court

Since a Chapter 13 filing involves paying back creditors over a period of time, the court will want to know about a debtor's amounts and sources of income. This will help ensure that a repayment plan is reasonable for both the creditors and the debtor. The court will also require debtors to provide a complete list of creditors and the amounts owed to each as well as a list of assets.

Additionally, debtors will need to document their living expenses, which include everything from rent and utilities to transportation costs. A filer who is married will also need to provide this information about the spouse so that the court can determine the household's financial situation. A copy of the income tax return from the most recent year is required as well.

Trustees

Once a Chapter 13 bankruptcy petition is filed, a trustee will be assigned to the case. The trustee is an impartial individual who is responsible for evaluating a case and serving as a disbursing agent, collecting plan payments from the debtor and using the proceeds to pay off creditors.

Automatic Stays

When someone files for Chapter 13, an automatic stay is put in place. This means that any actions on the part of creditors to garnish wages or repossess property are stopped. This stay generally lasts throughout the duration of the repayment plan, and it is the mechanism that allows people to save their homes from foreclosure.

Meeting of Creditors

The trustee will set up a meeting of creditors 21 to 50 days after a bankruptcy petition is filed. Debtors are placed under oath and they are asked questions by both the creditors and the trustee regarding their finances and the terms of their repayment plan. If a married couple files jointly, both individuals must be present.

Window for Creditors to File a Proof of Claim

To be included in the repayment plan, the creditor must file a proof of claim within 90 days of the meeting of creditors. Government entities have 180 days to file a claim.

Repayment Plan Hearing

The debtor is given 14 days from the filing date to provide the court with a repayment plan. It will need to provide for fixed payments to a trustee on a regular basis, which is usually either biweekly or once a month. The plan will also outline how payments will be distributed to creditors by the trustee. Within 45 days of the creditors' meeting, a hearing must be held to allow a judge to determine if the plan meets legal requirements and is feasible.

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