Take a deep breath before you read the following about Chapter 13. You do not have to read any further if you just want to call and come in for a consultation. We will explain all your options based on your particular circumstances. This is here to give you background information if you want it. At the end of the discussion we have outlined the filing process.
Remember that every case and fact pattern is different. The following information is general and you should read through it thoroughly a few times. We encourage you to talk to us first before you try to come to any conclusions. Our office typically is paid through the Chapter 13 plan payments and no money is paid upfront. Try to focus on the following points of information: Regular Income, Plan, Budget, Trustee, Automatic Stay, Applicable Commitment Period, Discharge.
You need a regular source of income. Chapter 13 is commonly called a Wage Earner Bankruptcy by attorneys. Many non-attorneys will call it a Repayment Plan or Reorganization Plan. All of these terms are misleading and do not really describe what happens in a Chapter 13 Bankruptcy.
A Chapter 13 can be used by anyone who has a regular source of income, whether this is from a job, a pension, social security, or some combination of sources. Chapter 13 Bankruptcy basically allows those who file to develop a plan to make payments to a bankruptcy trustee.
You propose a Plan. In most cases you are not paying your debt in full, but paying what you can afford subject to certain limitations. You and your lawyer develop and propose a plan for your creditors. Creditors in a Chapter 13 case are put into different categories which determine how much they are paid. In some cases creditors are paid almost nothing, in other cases they are paid in full (but usually with no interest for unsecured creditors such as medical bills and credit cards).
In many cases people who file Chapter 13 Bankruptcy will only be repaying secured creditors (cars loans and similar debts) and not repaying unsecured creditors (medical bills, credit cards, personal loans). In some cases people will propose a plan where they will actually pay a percentage of their unsecured debt back. All of this depends on your income, your budget and what types of debts you have.
A Chapter 13 is often used to “keep your stuff”. If you have property that might be seized in a Chapter 7 case and you want to keep it you can file a Chapter 13 and propose to pay a portion of the value into your case to retain the property. Let’s imagine you had a four-wheeler worth $2,000 and it was paid for. You want to keep it but know you might lose it in a Chapter 7 case. You decide to file a Chapter 13 case and pay the “liquidation” value into your Chapter 13 Plan to retain the four-wheeler. The liquidation value is the amount of money that would have gone to your creditors in theory had you filed a Chapter 7 instead of a Chapter 13. Because certain fees and costs are involved in a Chapter 7 case this means the amount paid is less than the actual value of the item being kept.
A Chapter 13 Plan may also be used to pay on a car that you are behind on or save your home from a foreclosure. It can cover all kinds of secured debts and prevent repossessions or foreclosures. We commonly use Chapter 13 cases to also cover title loans on vehicles our clients need to keep. You can pay the title loan at a greatly reduced rate.
You have to put together a budget. At our office you will sit down with your lawyer and work out a budget. Depending on the amount of money left over after a reasonable budget is put together you will make a payment to the trustee. Whether a budget is reasonable or not is determined by the court, but there are guidelines and we are familiar with them and can help you plan out a budget that will meet your needs and not leave you wanting. If you have a minimum plan payment to keep a vehicle or certain property then we have to make sure the budget you are proposing will leave you enough money to make the payment that will be required. Having a reasonable working budget is one of the most important steps in planning a Chapter 13 bankruptcy as this will ensure your successful completion of the case.
There are three Chapter 13 Trustees in Kansas. There is one located or attached to each of the federal courthouses you can file your case in: Wichita, Topeka, and Kansas City. Each trustee manages a large number of cases and they have administrative staff and in some cases other attorneys on staff. They look at your plan and determine whether or not it meets the requirements of the law and they will object if they think it is necessary.
The trustees manage the money that is paid into the case by you. You never pay your attorney or the court directly – you pay the trustee. They charge a fee to manage the cases that ranges between 0% and 10%. The trustee’s fee is largely based on how much it costs for the individual trustee to run their office and how much money they have under management. The amount of money they spend to run their offices and their average fees as well as other information about them can be found publicly through the U.S. Trustee’s program. Because the offices are managed independently of each other and have different expenses the fees are not the same from one location to the next. Your attorney should cover this fee with you in detail. In some cases it makes such a difference that the choice of filing will be determined by the lowest fee in order to get a reduced overall cost to the bankruptcy.
When you file a Chapter 13 Bankruptcy an “order for relief” is issued by the court. This order is called the Automatic Stay. It is a court order that is mailed to all of your creditors that lets them know you have filed a bankruptcy and they have to cease all collection activities. The Bankruptcy Court now has control over what is going on with your debts and assets. The Automatic Stay is in place during your bankruptcy case and protects you. The Automatic Stay is often called an “injunction” by attorneys. An injunction is a court order that normally stops someone from doing something. In this case it stops your creditors. When your case is completed it is replaced by a different court order known as the Discharge or Discharge Injunction.
The automatic stay or “Stay” as it is commonly called by attorneys is most often used to stop garnishments, repossessions, collections attempts, lawsuits and other creditor activity. It does not matter that the creditor already has a judgment or has already filed an action – the Stay will stop actions and force creditors to turn things off.
The “Stay” in Chapter 13 prevents your creditors from taking action against you or your assets. This is the same stay that applies to Chapter 7 cases. However, the “Stay” in a Chapter 13 will last much longer than in a Chapter 7 bankruptcy. This means that when someone has nondischargeable debts that need to be held at arm’s length for a substantial period of time the person filing may be far better off in a Chapter 13 than a Chapter 7.
Applicable Commitment Period
A Chapter 13 Plan usually runs for 3 to 5 years. This is determined by you and your attorney before the case is filed, subject to certain limitations based on your income level. In most cases you will sit down with your lawyer and determine how much your payment will be and over what period of time the case will run within the guidelines. Most cases run somewhere in-between 36 and 55 months. There are cases that have a mandatory 5 year run time based on overall income in the last six months. Your bankruptcy attorney will be able to determine this and explain it to you.
For the moment let’s assume your case must run at least 36 months. When you are told that a case will run a minimum of 36 months that does not mean it will run only 36 months. It is a minimum and could run longer. You and your attorney will plan out, based on your budget and what has to be paid back, how long that time period will be. As an example, if you are paying back a total of $12,000 in your case and your budget says you can afford a $300 per month payment and you are under the median income then the case will run approximately 40 months if no payments are deferred. What if you could afford a $400 payment? It might appear that the case would run 30 months but that is only if the creditors are being paid 100 cents on the dollar – if they are being paid less than that then you would still have that $400 payment for 36 months and the extra 6 months of payments would help pay down the creditors that would not otherwise have received any money.
The most important thing to understand here is that these numbers are variable and your attorney must sit down with you and cover the options.
Typically, you get a discharge in a Chapter 13 Bankruptcy after completing all plan payments (3 to 5 years). This assumes you have complied with the requirements of the Bankruptcy Court and turned over any property the Trustee has requested. The discharge is the court order that wipes out all debt that can be discharged. Your attorney will explain which creditors in your case will be wiped out and which creditors will survive the Bankruptcy and will be entitled to collect again once the case is closed.
The debts that are usually not discharged in Chapter 13 include: tax debts in some cases, student loans, child support or spousal maintenance (domestic support obligations), criminal fines or penalties, parking tickets, injuries caused to someone else intentionally, and debts incurred with no intent to repay them (fraud). In many cases although a non-dischargeable debt could be paid through the plan so it is not waiting for you at the end of the case. One of the major differences between the Chapter 7 and Chapter 13 discharge is that Chapter 13 will discharge debts owed from a property settlement agreement and Chapter 7 will not.
Some of the debts survive bankruptcy automatically; some require a hearing to be considered nondischargeable. In some cases creditors will attempt to get around the discharge by file a special action in the bankruptcy court to have the debt they are owed determined to be “nondischargeable”. Bankruptcy attorneys call these “Adversaries” or “Nondischargeability Actions” or “523 Actions” (shorthand for the bankruptcy code section being used by the creditor). Your attorney can tell you if you will be likely to face this type of action but it is very rare and easy to spot. We will go over the exceptions with you.
When you complete all the payments and all the requirements of your bankruptcy plan, including your pre-discharge education class, you will be eligible for a discharge. Your lawyer files paperwork and as long as all the requirements are fulfilled the Bankruptcy Court issues a Discharge that replaces the Automatic Stay.
Often you will speak to one of our bankruptcy attorneys before ever coming in. We try to answer many basic questions over the phone to give you an idea on what to expect. During the actual consultation we will go over all your options and explain what we are looking for when we analyze a case. We have built an office that can file your case quickly, if needed. We have cases that will be filed within 24 hours of our office being contacted and we have cases that have been put off for 3 or 4 years before filing. It all depends on the facts of the case and the choices of our clients.
1) We help you determine if you are qualified to file Chapter 13
You will need to provide paystubs or income records, fill out a budget worksheet and then sit down with an attorney to go over the budget. We want a budget done so we can go over all of your options and help you understand what life will look like after your bankruptcy is filed. We also want to make sure you can make the payment that your plan will propose and that you will be able to meet your basic financial obligations (rent, utilities, food, etc.).
2) Complete mandatory credit counseling before filing
We do this in our office with you and an online service provider. This is not to be confused with the type of credit counseling class you would do over several weeks of time outside of bankruptcy. This is a requirement that takes part of your meeting to sign your case. Most attorneys will have you do it on your own but we like to help people through this process because not all of our clients are tech savvy or have their financial materials organized. We help you get this done by organizing the information and being there to help you answer questions.
3) Put your bills together and let us have them
We will pull all three credit reports; however, we also want a detailed list of all of your debts. Bring your bills. We will sort through them.
4) Complete necessary paperwork
We refer to this appointment as the draft and sign appointment. There are three basic rules at this appointment: Disclose, disclose, disclose. A bankruptcy attorney (if you didn’t read this earlier, we love our staff, but lawyers sit down with clients to draft cases in this office) with our office will thoroughly explain the purpose of each form. We will ask you all the required questions and go over the petition, schedules, and all documents line by line.
5) File for Bankruptcy
We file the completed forms electronically using special bankruptcy software. We keep the original signed copies of all but one or two documents in the file (those get mailed into the bankruptcy clerk). The Bankruptcy Court will inform everyone you owe that you have filed for bankruptcy.
6) You attend a hearing.
You and your bankruptcy attorney will attend a hearing where your bankruptcy trustee will confirm with you that your paperwork was completed and correct and you went over it. You are notified of this meeting by mail about 5 to 7 days after filing your case. The meeting is usually set about 30 days after filing the case. This should give you a three week window to plan for the meeting. These are public hearings and normally you will be in a room with other people who have filed for bankruptcy and their attorneys. Your creditors can show and ask questions about your case, but they hardly ever appear.
7) You make plan payments.
You have to make payments to the bankruptcy trustee starting within 30 days of the filing of your case. In some cases, where a garnishment is in effect at the time of filing, you may be able to delay the start of the payments until the garnishment from the creditor is lifted. You and your attorney should have an idea of how long the plan will run at the time the case is filed.
8) The court issues a confirmation order
There is a hearing that you do not usually attend where the court determines if your plan is appropriate. If the Court does think the plan is appropriate then it will issue an order “confirming” the plan. This hearing usually happens within 60 days of the filing of the case. Once the case is confirmed you continue to make your payments under the plan.
9) Debtor Education Class
You have to take another class before you can get a discharge and we will provide you with information on different classes you could take. Typically, we refer our clients to a non-profit agency for one on one counseling or provide our clients with a list of online classes. In Kansas City the Bankruptcy Trustee offers a free class at the courthouse.
10) File a Motion for Discharge
After you complete your plan payments, your lawyer will have you fill out some additional paperwork and will file a motion for discharge.
11) Order for Discharge/Case Closed
Once the Court determines that you complied with applicable rules and completed your plan payments, you will get an Order of Discharge. This usually happens within 30 days of the Motion for Discharge. Shortly after, your case will be closed.
If you or a loved one are thinking about filing for Chapter 13 bankruptcy, it’s important for you to know that you are not alone. Our Chapter 13 bankruptcy lawyers at Chris Coons & Associates are supportive, knowledgeable, and want all of our clients to experience the relief that Chapter 13 bankruptcy can provide. Please contact our Chapter 13 lawyers for more information and for a free, confidential consultation. Contact us now: (785) 856-8720