Bankruptcy Information
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NEW BANKRUPTCY LAW - EFFECTIVE OCTOBER 17, 2005
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Declaring bankruptcy can be a complicated legal process, but if you have an attorney, it may be relatively quick. But, be warned: if you hide assets, or have committed fraud, or are trying to use bankruptcy in a wrongful way, it can be full of unpleasant surprises and frustrating delays. Things happen in the same order in most bankruptcies, and you can at least get a general idea of what's likely to happen. It will also help to know some of the words and phrases that come up in a bankruptcy.
The following chronology gives a general idea of how a bankruptcy filing proceeds. Your action may be different because of differences between local court rules, state laws, and rules of civil procedure. Your attorney can help you understand exactly how your case will fit with this chronology. Remember, your attorney works for you, and should clearly explain every step of the legal process.
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A bankruptcy case begins with a Petition. The Petition is a complex document, and includes characterization of debts. Typically, because the filing requirements are so stringent, a lawyer will prepare this document. In most cases, preparing and filing your Petition is the hardest part of the process.
The Petition will be under Chapter 7 or Chapter 13 of the Bankruptcy Code. Chapter 7 discharges
your debts; Chapter 13 allows you to pay most of them off over time. (There are other Chapters:
Chapter 11 deals with business reorganization, and other Chapters deal with farms, railroads and
municipalities.) -
When you file bankruptcy, federal law imposes an "automatic stay" which prevents your creditors from taking any action to collect debts against you, including court judgments and tax debts, during the pendency of the bankruptcy. For instance, if you have been served with a lawsuit by one of your creditors to appear in court over a debt, the bankruptcy filing will stop the lawsuit.
Depending on where you live, sometime between immediately and a month after you file, the
Bankruptcy Court will send out a Notice of Filing and a Notice of Stay to your creditors. This
Notice makes it illegal for your creditors to continue trying to collect from you, although they are
free to contact your attorney. If you are contacted before the Notices go out, tell the creditor that
you filed and give them the Bankruptcy Court docket number. -
Within thirty days after your filing, you will have to attend a "Meeting of Creditors" chaired by the Bankruptcy Trustee assigned to your case. Unless there is a "red flag" that alerts the Trustee that your case is unusual, this will be a brief meeting. Generally, the Trustee will ask you a few form questions and a few questions related to your business, and then will ask if there are any creditors present, with questions. Usually there will not be, although some credit card providers attend many or most Meetings of Creditors.
If the Meeting of Creditors is uneventful, the process is probably over for you and your lawyer. If
you are seeking a Chapter 7 Petition, you will receive a Notice of Discharge in about six weeks. If
you are filing under Chapter 13, you will receive Notice of Confirmation in about the same time, and
begin making payments. -
If the creditors have problems with your Petition, they have a certain amount of time to file an adversary proceeding. An adversary proceeding asks the Bankruptcy Court to refuse to discharge a certain debt for some particular reason. The most common reason is fraud, either giving rise to the debt (like if you got money by stealing from your employer) or fraud in the bankruptcy (like lying about your assets). An adversary proceeding goes on like regular litigation, and it can take as long as regular litigation. Your discharge of these debts will be delayed until the adversary proceeding is resolved.
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If there are no problems with your Chapter 7 Petition, or once you have paid off your creditors under a Chapter 13 plan, or once any adversary proceedings are resolved, you will receive a Notice of Discharge.
It's hard to say how long these steps will take in your case. The entire process can take from as little as three months, to as long as five years. Bankruptcy is one of those rare areas where the process is faster in population centers. In Manhattan, you can receive a Chapter 7 discharge in about three months, whereas it takes about twice as long in rural Nevada. Chapter 13 plans are usually on a timeline of three to five years. Adversary proceedings are uncertain as any other litigation, although most Bankruptcy Courts are fairly vigilant about moving them through the system quickly.
CHAPTER 7
NO ASSET CASE
DEBTOR'S VIEW TIMELINE
Petition Interim Trustee Notice to Creditors Creditor Meeting Objections to Exemptions Objections to Discharge/ Discharge/Reaffirmation
Dischargeability
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0 5-10 10-15 40 70 100 150
elapsed time in days
COMMON QUESTIONS ASKED ABOUT CHAPTER 7 BANKRUPTCY
1. What is Chapter 7 and how does it work?
Chapter 7 is that part of the federal bankruptcy laws that permit a person to discharge certain debts by filing a case in the bankruptcy court, turning all of his or her nonexempt property over to a trustee, and obeying the orders and rules of the court. A person who files under Chapter 7 is called a debtor.
2. What is a Chapter 7 discharge?
It is a court order releasing a debtor from all of his or her dischargeable debts and ordering the creditors not to attempt to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay. Some debts, however, are not released by a Chapter 7 discharge, and some persons are not eligible for a Chapter 7 discharge.
3. What debts are not released by a Chapter 7 discharge?
All debts of any kind or amount, including debts incurred in other states, are released by a Chapter 7 discharge, except those listed below. The following types of debts cannot be discharged under Chapter 7:
(1) debts for certain taxes, including taxes that became due within the last three years;
(2) if the creditor files a complaint and if the court so rules, debts for obtaining money, property, services, or credit by means of false pretenses, fraud, or a false financial statement (included here are certain debts for luxury goods or services and for certain cash advances made within 60 days before the case is filed);
(3) debts not listed on the debtor's Chapter 7 papers, unless the creditor had notice or actual knowledge of the case in time to file a claim. The Sixth Circuit Court of Appeals has held that debtor's omission of claim from schedules in a no asset case did not preclude discharge of claim because no deadline was set for filing proofs of claims, therefore, creditor received notice in time to permit timely filing of proof of claim. See In re Madaj, 149 F3d 467 (6th Cir. 1998).
(4) if the creditor files a complaint and if the court so rules, debts for fraud, embezzlement, or larceny;
(5) debts for alimony, maintenance or support, with certain very limited exceptions;
(6) if the creditor files a complaint and if the court so rules, debts for intentional or malicious injury to the person or property of another;
(7) debts for certain fines or penalties;
(8) debts for student loans, unless not discharging the debt would impose an undue hardship on the debtor and his or her dependents;
(9) for death or personal injury caused by the debtor's operation of a motor vehicle if such operation was unlawful because the debtor was intoxicated;
(10) debts that were or could have been listed in a previous bankruptcy case of the debtor in which the debtor did not receive a discharge;
(11) debts arising from any act or fraud or defalcation while acting in a fiduciary capacity committed with respect to any depository institution or insured credit union;
(12) debts which arose from the debtor's malicious or reckless failure to fulfill any commitment to a federal depository institutions regulatory agency regarding the maintenance of capital of an insured depository institution;
(13) any payment of an order of restitution issued under Title 18, United States Code (added by the Violent Crime Control and Law Enforcement Act of 1994);
(14) loans incurred to pay federal taxes that would be nondischargeable pursuant to '523(a)(1);
(15) if the creditor files a complaint and the court rules, debts, other than those covered in '523(a)(5) (subsection 5 above) that are incurred by the debtor in the course of a divorce or separation agreement that satisfy at least one of the following criteria:
(a) the debtor does not have the ability to pay such debt from income or property of the debtor not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent and if the debtor is engaged in a business, for the payment of expenditures necessary for the operation of such business; or
(b) discharging such debt would result in a benefit to the debtor that outweighs the detrimental consequences to a spouse, former spouse, or child of the debtor;
(16) fee or assessments that become due after the filing of a petition to membership associations with respect to the debtor's interest in a dwelling unit that has condominium ownership, or in a share in a cooperative housing corporation, but only for the period the debtor either lived in or received rent for the condominium or cooperative unit.
4. What persons are not eligible for a Chapter 7 discharge?
Everyone is eligible for a Chapter 7 discharge except the following persons:
(1) those who have been granted a discharge in a Chapter 7 case filed within the last eight years;
(2) those who have been granted a discharge in a Chapter 13 case filed within the last six years, unless payments under the plan in such case totaled 100% of the unsecured claims or 70% of such claims and the plan was proposed in good faith and was the debtor's best effort.
(3) those who file a waiver of discharge in their Chapter 7 case that is approved by the court;
(4) those who conceal, transfer, or destroy their property with the intent to defraud their creditors or the trustee in the Chapter 7 case;
(5) those who conceal, destroy, or falsify records of their financial condition or business transactions;
(6) those who make false statements or claims in their Chapter 7 case, or who withhold recorded information from the trustee in the case;
(7) those who fail to satisfactorily explain any loss or deficiency of their assets;
(8) those who refuse to answer questions or obey orders of the bankruptcy court, either in their case or in the case of a relative, business associate, or corporation; or
(9) the debtor is not an individual.
5. Who may file under Chapter 7?
Any person who resides in, who does business in, or who has property in the United States may file under Chapter 7, except a person who has been involved in another bankruptcy case that was dismissed within the last 180 days on certain grounds. It may not be wise, however, for a debtor to file under Chapter 7 if he is not eligible for a Chapter 7 discharge or if some of his debts will not be released by a Chapter 7 discharge. Also, it may not be wise for a debtor with sufficient current income with which to repay a substantial portion of his debts within a reasonable period to file under Chapter 7, because the court may dismiss the case as constituting an abuse of Chapter 7.
6. How much does it cost to file under Chapter 7?
The filing fee is $299.00 for either a single or joint case. If a debtor is unable to pay the filing fee when the case is filed, it may be paid in installments, with the final installment due within 120 days. The period for payment may later be extended to 180 days by the court if a valid reason exists for doing so. The entire amount of the filing fee must ultimately be paid, however, or the case will be dismissed and the debtor's debts will not be discharged. The fee charged by the debtor's attorney for handling the Chapter 7 case is in addition to the filing fee.
7. Where is a Chapter 7 case filed?
In the office of the clerk of the bankruptcy court in the district where the debtor lived or maintained his or her principal place of business for the greatest portion of the last 180 days.
8. Under what conditions should a husband and wife both file under Chapter 7?
Both husband and wife should file if some of the debts to be discharged are owed by both spouses. If both spouses are liable for some of the debts and if only one spouse files under Chapter 7, the creditors often try to collect from the non-filing spouse.
9. May a husband and wife file jointly under Chapter 7?
Yes. A husband and wife may file a joint petition under Chapter 7, using the same set of forms. Also, only one filing fee is charged for a joint case.
10. When is the best time to file under Chapter 7?
The answer depends on the status of the debtor's dischargeable debts and nature of the nonexempt assets. The debtor should follow these rules:
(a) It is not wise for a debtor to file under Chapter 7 if it is anticipated that substantial additional debts will be incurred in the near future, because it will be another eight years before the debtor is again eligible for a Chapter 7 discharge.
(b) If a debtor is due to receive an income tax refund or other asset that is not exempt, the debtor should not file under Chapter 7 until after the refund or asset has been received and disposed of. If the debtor files under Chapter 7 before the refund or asset has been received and disposed of, he will lose the nonexempt portion of the refund or asset because it will later have to be turned over to the trustee in the Chapter 7 case.
(c) All nonexempt property or money acquired by a debtor through inheritance, life insurance, or a divorce within 180 days after the filing of a Chapter 7 case becomes the property of the trustee in the Chapter 7 case. Therefore, if a debtor anticipates acquiring any money or property through any of these means within the next 180 days, he should not file under Chapter 7 at this time.
11. How does filing under Chapter 7 affect lawsuits and attachments that have already been filed against the debtor?
The filing of a Chapter 7 case automatically stays most lawsuits and attachments that have been filed against the debtor. A few days after a Chapter 7 case is filed, the court will mail a notice to all creditors ordering them to refrain from any further action against the debtor. If the debtor cannot wait this long, it is permissible for him or his attorney to notify one or more of the creditors of the filing of the case. Any creditor who intentionally violates this court order may be liable to the debtor in damages. The most common actions not affected by the filing of a Chapter 7 case are criminal proceedings and actions for the collection of debts for alimony, maintenance, or support from exempt property or from property or funds acquired or earned by the debtor after the case was filed.
12. May employers or government agencies discriminate against persons who file under Chapter 7?
It is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed under Chapter 7. It is also illegal for local, state, or federal government units to discriminate against a person as to the granting of licences (including a driver's license), permits, and other similar grants because that person has filed under Chapter 7.
13. Will a person lose all of his property if he files under Chapter 7?
Under the state and federal laws, certain properties are declared to be exempt and cannot be taken by a person's creditors, except those with valid mortgages on the exempt property. A debtor is allowed to keep his unmortgaged exempt property in a Chapter 7 case, and must turn only his nonexempt property over to the trustee in the case.
14. When must a person go to court in a Chapter 7 case and what happens there?
The first court appearance will be about a month after the case is filed for a hearing called the meeting of creditors. At this hearing, the debtor will be put under oath and questioned about his money, property, and debts by the trustee. In many Chapter 7 cases, no creditors appear in court; however, if a creditors does make an appearance, he or she will be allowed to question the debtor.
15. What happens after the meeting of creditors?
After the meeting of creditors, the trustee may contact the debtor regarding the collection or existence of nonexempt property, and the court may issue orders to the debtor. These orders may require the debtor to turn certain property over to the trustee, or provide the trustee with certain information.
16. What is a trustee in a Chapter 7 case, and what does he do?
The trustee is an officer of the court, appointed to gather the debtor's nonexempt property, turn it into cash, and pay the money out to the proper creditors. In addition, the trustee has certain administrative duties in a Chapter 7 case, and is the officer in charge of seeing to it that the debtor performs the duties required of him or her in the case. A trustee is appointed in a Chapter 7 case, even if the debtor has no property for the trustee to collect.
17. What are the debtor's responsibilities to the trustee?
The law requires the debtor to cooperate with the trustee in the administration of a Chapter 7 case, including the collection by the trustee of the debtor's nonexempt property. If the debtor does not cooperate with the trustee, then the case may be dismissed and the debts may not be discharged.
18. What happens to the property that the debtor turns over to the trustee?
It is usually converted into cash, which is later used to pay the administrative expenses of the trustee and to pay the claims of creditors. The trustee is permitted to pay himself a fee, which is based on a percentage of the amount collected from the debtor.
19. What happens if the debtor has no nonexempt property for the trustee to collect?
If, from the debtor's Chapter 7 forms, it appears that the debtor will have no nonexempt money or property, a notice will be sent to the creditors advising them that there appears to be no assets from which to pay creditors, that it is unnecessary for the creditors to file claims, and that if assets are later discovered the creditor will then be given an opportunity to file claims. A trustee will be appointed, however, even if the debtor has no nonexempt assets for the trustee to collect, and the debtor must cooperate with the trustee.
20. What do creditors with mortgages against the debtor's property do in a Chapter 7 case?
Creditors with valid mortgages against the debtor's property are usually permitted to repossess or foreclose on the property, if the value of the property does not exceed the amount secured by the property. A creditor must prove the validity of the mortgage and obtain a court order, however, before repossessing or foreclosing of any property, and the debtor should not turn any property over to a creditor until a court order has been obtained. If the value of the mortgaged property exceeds the amount secured by the mortgage, the creditor might not be allowed to repossess the property. The debtor is permitted to retain certain property even if there is a valid mortgage against it, and the debtor may redeem certain mortgaged property from the creditor by paying less than the amount secured by the mortgage (see Question 22, below).
21. What do unsecured creditors do in a Chapter 7 case?
If the debtor has nonexempt assets, unsecured creditors may file claims with the court within 90 days after the date of the meeting of creditors. The trustee examines these claims and files objections to those that are deemed improper. When the trustee has collected all of the debtor's nonexempt property and converted it to cash, and when the court has ruled on any objections filed against the claims of creditors, the trustee distributes the funds according to certain priorities. Administrative expenses, claims for wages, salaries, and contributions to employee benefit plans, claims for the refund of certain deposits, and tax claims are given priority, in that order, in the distribution of funds by the trustee. If there are funds remaining after the payment of these priority claims, they are distributed pro rata to the remaining unsecured creditors. If the debtor has no nonexempt assets, the creditors are notified not to file claims.
22. May the debtor keep any of his mortgage property in a Chapter 7 case without paying off the creditor?
A debtor may retain certain mortgaged personal and household items, such as household furniture, appliances and goods, wearing apparel, and tools of trade, without paying the creditor anything if the items are exempt and if the mortgage against the property is not a purchase-money mortgage. A debtor may also retain exempt property that is subject only to a judgment lien without paying the creditor anything. A debtor may retain certain exempt personal, family, or household items by paying to the creditor only an amount equal to the value of the items, regardless of how much is owed to the creditor.
23. How is a debtor notified that his discharge has been granted?
Most courts send a form called Discharge of Debtor to the debtor and to all creditors. This form is a copy of the court order releasing the debtor from his dischargeable debts, and it usually serves as notice that the debtor's discharge has been granted. It is usually mailed about four months after the case is filed, unless the trustee or a creditor has filed an objection to the discharge of the debtor, in which case a hearing must be held so that the court can rule on the objection. If the debtor's discharge is not granted, the court must inform the debtor of the reasons for not granting it.
24. What if a debtor wishes to repay one or more of his discharged debts after filing under Chapter 7?
A debtor may repay as many of his discharged debts as he wishes after filing under Chapter 7. By repaying once creditor, a debtor does not become legally obligated to repay any other creditor. The only discharged debts that a debtor is legally obligated to repay after filing under Chapter 7 are those for which the debtor and the creditor have entered into a reaffirmation agreement that meets with certain requirements of the bankruptcy laws. Unless a debt is covered by a valid reaffirmation agreement, a debtor is not legally obligated to repay (or continue repaying) any discharged debt, even if the debtor has made one or more payments on the debt since filing under Chapter 7, has agreed in writing to repay the debt, or has waived the discharge of the debt.
25. How long does a Chapter 7 case last?
A chapter 7 case begins with the filing of the case and ends with the closing of the case by the court. If the debtor has no nonexempt money or property for the trustee to collect, the case will most likely be closed shortly after the debtor receives his discharge, which is usually about four months after the case is filed. If the debtor has nonexempt money or property for the trustee to collect, the length of the case will depend on how long it takes the trustee to collect the assets and perform his other duties in the case.
26. What should a person do if a creditor later attempts to collect a debt that was discharged in his Chapter 7 case?
When a discharge is granted, the court enters an order prohibiting the creditors from later attempting to collect from the debtor any debt that was discharged in the Chapter 7 case. If a creditor violates this court order it may be held in contempt of court and fined; and it may be liable to the debtor in damages. If a creditor later attempts to collect a discharged debt, the debtor should give the creditor a copy of the order of discharge and inform it that the debt has been discharged under Chapter 7.
27. Does a Chapter 7 discharge effect the liability of other parties who may be liable to a creditor on a discharged debt?
A Chapter 7 discharge releases only the debtor. The liability of any other party on a debt is not affected by a Chapter 7 discharge. The only exception to this rule is in community property states where the spouse of a debtor may also be released from certain community debts.
28. What is the role of the attorney for a consumer debtor in a Chapter 7 case?
The debtor's attorney performs the following functions in a Chapter 7 case of a typical consumer:
(1) Analyze the amount and nature of the debts owed by the debtor and determine the best remedy for the debtor's financial problems.
(2) Advise the debtor of the relief available under both Chapter 7 and Chapter 13 of the bankruptcy laws, and the advisability of proceeding under each chapter.
(3) Assemble the information and data necessary to prepare the Chapter 7 forms for filing.
(4) Prepare the petitions, schedules, statements and other Chapter 7 forms for filing with the bankruptcy court.
(5) Assist the debtor in arranging assets so that he or she can retain as much of them as possible after the Chapter 7 case.
(6) Filing the Chapter 7 petition, schedules, statements and other forms with the bankruptcy court, and, if necessary, notifying certain creditors of the commencement of the case.
(7) If necessary, assisting the debtor in redeeming certain personal property and in setting aside certain mortgages or liens against exempt property.
(8) Attending the meeting of creditors with the debtor.
(9) If necessary, preparing and filing amended schedules and certain statements and other documents with the bankruptcy court in order to protect the rights of the debtor.
(10) If necessary, attending the discharge and reaffirmation hearing with the debtor and assisting the debtor in reaffirming certain debts and in overcoming obstacles to the granting of the Chapter 7 discharge.
The fee paid, or agreed to be paid, to an attorney representing the debtor in a Chapter 7 case must be disclosed to the bankruptcy court. The court will allow the attorney to charge only a reasonable fee for representing the debtor. It is customary for the debtor's attorney to collect all or most of his fee before the case is filed.
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COMMON QUESTIONS ASKED ABOUT CHAPTER 13 BANKRUPTCY
1. What is Chapter 13 and how does it work?
Chapter 13 is that part of the federal bankruptcy law that permits a person to repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. Under Chapter 13, the person filing the case, who is called the debtor, submits a plan for the repayment of all or a portion of the debts to the court, which must approve the plan for it to become effective. The court prohibits the creditors from attempting to collect their claims from the debtor and permits the debtor to make regular payments in the amounts called for in the debtor's plan to the Chapter 13 trustee for the period of time specified in the plan. The Chapter 13 trustee collects the money paid in by the debtor and disburses it to the creditors as set forth in the debtor's plan. Upon the completion of the payments called for in the plan, the debtor is discharged from any liability for the remainder of the debts.
2. How does Chapter 13 differ from Chapter 7?
Under Chapter 7, the debtor loses all or most of his nonexempt property and is released from liability of dischargeable debts. Under Chapter 13, the debtor is usually permitted to keep nonexempt property, is required to pay off as much of the debts as is feasible, and is released from liability for the balance of the dischargeable debts. More types of debts are dischargeable under Chapter 13 than are dischargeable under Chapter 7.
3. When is Chapter 13 preferable to Chapter 7?
Chapter 13 is usually preferable for the debtor who - (1) wishes to repay all or most of his unsecured debts and has the income with which to do so within a reasonable time, (2) has valuable nonexempt property or exempt property pledged as security for debts, either of which he would lose if he filed under Chapter 7, (3) is not eligible for a discharge under Chapter 7, (4) has one or more substantial debts that are not dischargeable under Chapter 7, or (5) has sufficient assets with which to repay his debts, but needs temporary relief from his creditors in order to do so or (6) seeks to cure a defaulted secured obligation.
4. How does Chapter 13 compare with a private debt consolidated service?
Under Chapter 13, the court possesses powers to aid the debtor that private debt consolidation services do not have. For example, the court has the power to prohibit creditors from attaching or foreclosing on the debtor's property, the power to force unsecured creditors to accept a Chapter 13 plan that does not pay their claims in full, and the power to discharge a debtor from unpaid portions of debts. Private debt consolidation services have none of these powers.
5. What is a Chapter 13 discharge?
It is a court order releasing a debtor from all of his or her dischargeable debts and ordering the creditors not to attempt to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay. There are two types of Chapter 13 discharges: one that is granted to a debtor who has completed all of the payments called for under the plan, and one that is granted to a debtor who is unable to complete the payments called for in his plan due to circumstances for which he should not justly be held accountable. The discharge granted upon the completion of a Chapter 13 plan discharges more debts than this other type of discharge which is known as a (hardship) discharge.
6. What debts are not released by a Chapter 13 discharge?
The Chapter 13 discharge granted after the completion of all payments under a Chapter 13 plan releases a debtor from all debts except:
(1) debts that are repaid outside of the plan,
(2) debts for alimony, maintenance, or support,
(3) installment debts whose last payment is due after the completion of payments under the plan,
(4) debts incurred during the time the plan was in effect that were not paid under the plan,
(5) student loans,
(6) for death or personal injury caused by the debtor's operation of a motor vehicle if such operation was unlawful because the debtor was intoxicated,
(7) for restitution, or a criminal fine, included in a sentence on the debtor's conviction of a crime. The Chapter 13 discharge granted when a debtor is unable to complete the payments under a plan due to circumstances for which he should not justly be held accountable (hardship discharge) releases the debtor from all debts except:
(1) secured debts,
(2) debts that are paid outside the plan,
(3) installment debts whose last payment is due after the completion of payments under the plan,
(4) debts incurred during the time the plan was in effect that were not paid under the plan, and
(5) the types of debts not discharged by a Chapter 7 discharge set forth in '523(a) of the Bankruptcy Code.
7. What is a Chapter 13 plan?
It is a written plan presented to the bankruptcy court by a debtor that states which of the debtor's debts should be paid, how much should be paid on each debt, how much of the debtor's earnings or other property should be paid to the Chapter 13 trustee, how long the payments should continue, which debts should be paid outside of the plan, and certain other technical matters.
8. What is a Chapter 13 trustee?
A Chapter 13 trustee is an officer of the court appointed to collect payments from the debtor, make payments to creditors in the manner set forth in the debtor's Chapter 13 plan and administer the Chapter 13 case until it is closed. The Chapter 13 trustee is required to perform certain other technical duties in a Chapter 13 case, and the debtor is required to cooperate with the Chapter 13 trustee.
9. What debts may be paid under a Chapter 13 Plan?
Any debts whatsoever, whether they are secured or unsecured. Even debts that are nondischargeable, such as debts for alimony, maintenance, or support, may be paid in a reasonable manner under a Chapter 13 plan.
10. Must all debts be completely paid off under a Chapter 13 plan?
No. Certain debts such as debts for taxes and fully secured debts, must be paid in full under a Chapter 13 plan, but only an amount that the debtor can reasonably afford must be paid on most debts. The unpaid balance of most debts not paid in full under a Chapter 13 plan may be discharged upon the completion of the plan.
11. Must all unsecured debts be treated alike under a Chapter 13 plan, or can more be paid on some that on others?
If there is a reasonable basis for doing so, unsecured debts may be divided into separate classes and treated differently. It may be possible, therefore, to pay certain unsecured debts in full, while paying very little on others. An unsecured debt is a debt that is not secured by a valid mortgage or lien.
12. How much of a debtors income must be paid to the Chapter 13 trustee under a Chapter 13 plan?
Usually all of a debtor's disposable income for a three-year period must be applied toward the making of payments under a Chapter 13 plan. Disposable income means income which is received by a debtor that is not reasonably necessary for the maintenance or support of the debtor and his or her dependents.
13. When must the payments to the Chapter 13 trustee begin and how often and by whom must they be made?
The Chapter 13 payments must begin within 30 days after a Chapter 13 plan is filed with the court, and a Chapter 13 plan must be filed with the court within 15 days after the case is filed. The payments must be made regularly, but in most cases they can be made weekly, bi-weekly, or monthly, whichever is most convenient for the debtor. If the debtor is employed, some courts require the Chapter 13 payments to be made by the debtor's employer; otherwise, the payments can be made either directly by the debtor or by his or her employer.
14. How long must a Chapter 13 plan last?
A Chapter 13 plan must last for three years, unless all debts can be paid off in full before that time. However, a Chapter 13 plan can last for as long as five years, if the debtor has a valid reason for doing so.
15. Is it necessary for all creditors to approve a Chapter 13 plan?
No. A Chapter 13 plan must only be approved by the court in order to become effective. The court cannot approve a plan unless secured creditors are dealt with in the manner described in the answer to Question 16, and unsecured creditors are permitted to file objections to the plan.
16. How may secured creditors be dealt with under Chapter 13?
There are four methods of dealing with a secured creditor under Chapter 13: The creditor (1) may accept the proposed plan, (2) may be allowed to retain the lien and be paid the full amount of the secured claim under the plan, (3) the collateral may be surrendered to him, or (4) may be dealt with outside the plan. It is important to realize that a secured creditor is considered to have a secured claim only to the extent of the value of the secured interest, which cannot exceed the value of the property securing the claim. For example, if a secured creditor has a mortgage on an automobile, and if the automobile is worth $500, then that creditor has a secured claim for only $500, regardless of how much is owed. If the debtor is in default to a secured creditor, the default must be cured within a reasonable time. Also, interest must be paid on secured debts.
17. How are debts that have been cosigned or guaranteed by someone else handled under Chapter 13?
If a consumer debt that has been cosigned or guaranteed by another person is being paid in full under a Chapter 13 plan, the creditor will be prohibited from collecting the debt from the other person. However, if the debt is not being paid in full under the plan, the creditor will be permitted to collect the unpaid portion of the debt from the other person.
18. Who is eligible to file under Chapter 13?
Any natural person may file under Chapter 13 if the person - (1) resides in, does business in, or owns property in the United States, (2) has regular income, (3) has unsecured debts of less than $336,900 (4) has secured debts of less than $1,010,650 (5) is not a stockbroker or commodity broker, and (6) has not been a debtor in another bankruptcy case that was dismissed within the last 180 days on certain technical grounds. A person meeting the above requirements may file under Chapter 13 regardless of when he or she last filed or received a discharge under either Chapter 7 or Chapter 13.
19. May a husband and wife file jointly under Chapter 13?
A husband and wife may file jointly under Chapter 13 if each of them meets the requirements listed in the answer to Question 18 above, except that only one of them need have regular income and their combined debts must meet the debt requirements listed above.
20. When should a husband and wife file jointly under Chapter 13?
If both spouses are liable for any substantial debts, they should file jointly under Chapter 13, even if only one of them has income. Also, if both of them have regular income, they should usually file jointly.
21. May a self-employed person filed under Chapter 13?
A person meeting the eligibility requirements in the answer to Question 18 above may file under Chapter 13 if his business is not incorporated. A debtor who owns his or her own business is normally permitted to continue to operate the business during the Chapter 13 case.
22. May a chapter 7 case that is still open be converted to Chapter 13?
A pending Chapter 7 case may be converted to Chapter 13 at any time, if the case has not been previously converted to Chapter 7 from Chapter 13.
23. Where is a Chapter 13 case filed?
A Chapter 13 case is filed in the bankruptcy court in a district where the debtor has lived, and his or her principal place of business located, or had his or her principal assets located, for the greatest portion of the last 180 days.
24. What fees are charged in a Chapter 13 case?
There is a $274 filing fee charged when the case is filed, which may be paid in installments, if necessary. In addition, the Chapter 13 assesses a fee not greater than 10 percent on all payments made under the plan. These fees are in addition to the fee charged by the debtor's attorney.
25. Does a debtor lose any property in a Chapter 13 case?
Usually not. Under Chapter 13, debts are normally repaid out of the payments made to the Chapter 13 trustee and not out of the debtor's property. However, if the debtor has considerable nonexempt property and cannot make sufficient payments to pay enough of his debts to satisfy the court, some of his property may have to be used to pay creditors. Also, if a secured creditor is not being paid under the plan, it may be permitted to repossess the property securing the claim if the debt owed is not paid.
26. How does filing under Chapter 13 affect lawsuits and attachments against the debtor?
The filing of a Chapter 13 case automatically stays all lawsuits, attachments, garnishments, and other actions by creditors against the debtor and the debtor's property for as long as the Chapter 13 case lasts. A few days after the case is filed, a notice is mailed by the court to all creditors advising them of the automatic stay. The creditors may be notified sooner by either the debtor or the attorney, if necessary. Creditors are not permitted to file lawsuits or attachments against the debtor during the pendency of the Chapter 13 case, and, if the debtor is granted a Chapter 13 discharge, they will be prohibited from attempting to collect any discharged debt from the debtor after the case is closed.
27. What is required for confirmation of a Chapter 13 plan?
The court will confirm a Chapter 13 plan if: (1) the plan complies with the legal requirements of Chapter 13, (2) all required fees, charges and deposits have been paid, (3) the plan has been proposed in good faith and not by any means forbidden by law, (4) each unsecured creditor will receive under the plan at least as much as would have received had the debtor filed under Chapter 7, (5) it appears that the debtor will be able to make the required payments and comply with the plan, and (6) each secured creditor has been dealt with in the manner described in the answer to Question 16 above.
28. When does a debtor have to appear in court in a Chapter 13 case?
Most debtors have to appear in court at least twice; once for a hearing called the meeting of creditors, and once for a hearing on the confirmation of the debtor's Chapter 13 plan. The meeting of creditors is usually held about a month after the case is filed. The confirmation hearing is generally held within 75 days thereafter. The debtor's testimony is not lengthy at either hearing, however. If difficulties or unusual events arise during the course of a case, additional court appearances may be necessary.
29. What if the court does not approve a debtor's Chapter 13 Plan?
If the court does not approve a Chapter 13 plan proposed by a debtor, the debtor is permitted to modify the plan and seek court approval of the modified plan. If the debtor does not wish to change his proposed plan, he may either convert the case to a Chapter 7 case or dismiss the case. If the Court does not approve a plan, it will usually set forth the reasons so that the plan may be appropriately modified.
30. How are the claims of creditors handled under Chapter 13?
Creditors must file their claims with the bankruptcy court within 90 days after the first date set for the meeting of creditors in order for their claims to be allowed. Unsecured creditors who fail to file claims within that period will be barred from filing a claim, and after the completion of the plan their claims will be discharged. A debtor may file a claim on behalf of a creditor if desired. When the claims have been filed, the debtor is notified and given an opportunity to file objections to any claims that are disputed. When the objections have been ruled on, and the claims approved by the court, the Chapter 13 trustee will begin making payments to unsecured creditors as called for in the Chapter 13 plan. Payments to secured creditors and to special classes of unsecured creditors may begin earlier if desired.
31. What if the debtor is temporarily unable to make his Chapter 13 payments?
If the debtor is temporarily out of work, injured, or otherwise unable to make the payments required under his Chapter 13 plan, the court may suspend the case until he is able to resume the payments. If it appears that the inability to make the required payments will continue for an extended period, the debtor may be permitted to modify the plan, or the case may be dismissed or converted to Chapter 7.
32. What if the debtor incurs new debts or needs credit during a Chapter 13 case?
Only two types of credit obligations or debts incurred after the filing of the case may be included in a Chapter 13. These are: (1) debts for taxes that become payable while the case is pending, and (2) consumer debts arising after the filing of the case that are for property or services necessary for the debtor's performance under the plan and that are approved in advance by the Chapter 13 trustee. Any other debts or credit obligations incurred after the case is filed must be paid by the debtor outside the plan. Some courts issue an order precluding the debtor from incurring any new debts during the case unless they are approved in advance by the Chapter 13 trustee. Therefore, if a debtor needs credit or wishes to incur a debt after the case has been filed, he or she should obtain the prior approval of the Chapter 13 trustee.
33. What if the debtor later decides to discontinue the Chapter 13 case?
A debtor has the right to either dismiss a Chapter 13 case or convert it to a Chapter 7 case at any time, regardless of his reason for doing so. However, if a debtor simply stops making the required Chapter 13 payments, the court has the power to compel the debtor, or his employer, to make the payments and to comply with the orders of the court.
34. What happens if a debtor is unable to complete his Chapter 13 payments?
A debtor who is unable to complete his Chapter 13 payments has three options: (1) he may dismiss the Chapter 13 case, (2) he may convert the Chapter 13 case to a Chapter 7 case, (3) if he is unable to complete the payments due to circumstances for which he should not justly be held accountable, he may seek to close the case and obtain the second type of a discharge described in the answer to Question 6 above.
35. What is the role of the debtor's attorney in a Chapter 13 case?
The debtor's attorney performs the following functions in a typical Chapter 13 case:
(1) Examining the debtor's financial situation and determining whether Chapter 13 is a feasible alternative for the debtor, and if so, whether a single or a joint case should be filed.
(2) Assisting the debtor in the preparation of a budget.
(3) Examining the liens or security interest of secured creditors to ascertain their validity or avoidability, and taking the legal steps necessary to protect the debtor's interest on such matters.
(4) Devising and implementing methods of dealing with secured creditors.
(5) Assisting the debtor in devising a Chapter 13 plan that meets the needs of the debtor and that is acceptable to the court.
(6) Preparing the necessary pleadings and Chapter 13 forms.
(7) Filing the Chapter 13 forms and pleadings with the court and paying, or providing for the payment of, the filing fee.
(8) Attending the meeting of creditors, the confirmation hearing, and any other court hearings required or called in the case.
(9) Assisting the debtor in obtaining court approval of his Chapter 13 plan.
(10) Inspecting the claims filed in the case, filing objections to improper claims, and attending court hearings thereon.
(11) Assisting the debtor in overcoming any legal obstacles that may arise during the courses of the Chapter 13 case.
(12) Assisting the debtor in obtaining the discharge of as many debts as possible upon the completion or termination of the plan.
The fee charged by an attorney for representing a debtor in a Chapter 13 case must be approved by the bankruptcy court. The fee must be reviewed and approved by the court whether it is paid prior to or after the filing of the case, and whether it is paid directly to the attorney by the debtor or by the trustee out of the debtor's Chapter 13 payments. The court will approve only a fee that it deems to be reasonable.
36. Where is the Chapter 13 Trustee for the Eastern District of Michigan located?
David Wm. Ruskin
1100 Travelers Tower
26555 Evergreen
Southfield, Michigan 48075
(248) 352-7755
Tammy L. Terry
535 Griswold
Suite 2100
Detroit, Michigan 48226
(313) 967-9857
Krispen S. Carroll
719 Griswold
1100 Dime Bldg.
Detroit, Michigan 48226
(313) 962-5035
FREE CREDIT REPORTS START DECEMBER 1 Beginning on December 1, 2004, free annual credit reports will be made available upon consumer's request, pursuant to the Fair and Accurate Credit Transactions Act of 2003 ("FACT"). The reports will be available across the country in four stages: Dec. 1, Alaska, Hawaii, and other Western states; March 1, Midwestern states; June 1, Southern states; New England and other Eastern states, Sept. 1. Consumers will be able to request their reports from all three major credit reporting agencies, at a special web site, AnnualCreditReport.com; the credit report will appear on the screen and may be printed out. Or, they may call 1-877-322-8228, or write to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
DOCUMENTS FOR INITIAL CONSULTATION
be sure to bring the following DOCUMENTS WITH YOU TO YOUR INITIAL
CONSULTATION:
(a) Copies of leases, mortgages, deeds and land contracts pertaining to your house or other real estate that you own;
(b) Current property tax statements, for any real property you have an interest in;
(c) The most current asset appraisal for your home and all other real property that you own, and all other
asset appraisals, such as for jewelry, art and collectibles;
(d) All certificates of title (originals if available, otherwise copies) for all title assets, including vehicles, boats
and mobile homes;
(e) Copies of life insurance policies either owned by the debtor or insuring the debtor's life;
(f) Proof of current insurance policies on all motor vehicles;
(g) Originals of bonds, stock certificates, bank and brokerage statements;
(h) Any papers relating to past bankruptcies, including Chapter 13 cases;
(i) Copies of state and federal tax returns for the past two years, and a copy of your latest four paycheck
stubs;
(j) Legal papers, lawsuits, and divorce papers (include Divorce Judgments and property settlement
agreements);
(k) Any other papers you have concerning any of your debts;
(l) Any lease or installment sale ("lease purchase") agreements for housing (apartment, house, mobile home) or other property (cars, televisions, etc.) that you have signed and that are still in effect or not fully paid;
(m) CURRENT CREDIT REPORT FOR EACH DEBTOR.
