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(972) 578-1400
You probably have a number of questions regarding Chapter 13 Bankruptcy. The bankruptcy attorneys at DeMARCO•MITCHELL, PLLC have provided a brief response for a few common questions. This consumer bankruptcy website, in addition to this Chapter 13 FAQ page, contains a wealth of information regarding bankruptcy. Be sure to explore the entire website and any links of interest. The Chapter 13 FAQs below are general in nature and may not completely answer all of your questions or address all of your concerns. For a more personal response to your questions, please contact our offices directly at (972) 578-1400 or contact us online to set up a free initial consultation.
A debtor is a person who owes someone else money. On the other hand, a creditor is someone who is owed money.
Chapter 13 is that section of the Bankruptcy Code under which a person may repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. In a chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. The plan must be approved by the court to become effective. If the court approves the chapter 13 plan, most creditors will be prohibited from collecting their claims from the debtor during the course of the case. The debtor must make regular payments to the chapter 13 bankruptcy trustee, who collects the money paid by the debtor and disburses it to creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts. Note all creditors need to be paid through the chapter 13 plan. In fact most mortgages and some vehicle loans are usually paid outside the chapter 13 plan.
Chapter 13 is usually preferable for a person who:
• wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time;
• has valuable nonexempt property or has valuable exempt property securing debts, either of which would be lost in a chapter 7 case;
• is not eligible for a discharge under chapter 7;
• has one or more substantial debts that are dischargeable under chapter 13 (i.e. certain taxes) but not under chapter 7; or
• has sufficient assets with which to repay most debts, but needs temporary relief from creditors in order to do so.
No, but the process is not as straight forward as you might believe. The wrong answer to a few simple questions can lead to dire results such as the dismissal of your chapter 13 bankruptcy case. It is highly recommended that you retain competent legal representation.
No. On the other hand, it may be a good idea because of the amount of joint debts. Moreover, under Texas law, debts incurred during the marriage are deemed to be community debts. As such, a spouse that does not sign loan documents may be found personally liable for such debts to the extent there may be recovery had against such spouse’s interest in any non-exempt community property assets. Latimer v. City National Bank of Colorado City, 715 S.W.2d 825, 827 (Tex. App.-Eastland 1986, no writ). Note, however, that one of the benefits of chapter 13 over chapter 7 is the fact that joint debtors benefit from the automatic stay to the same extent as does the debtor as regards consumer debts.
Yes. Whether the debt is owed to a bank, a relative or a friend, all creditors must be listed. When you sign your chapter 13 bankruptcy schedules you are stating under penalty of perjury that all of your creditors have been listed. An intentional failure to list a creditor may constitute cause for conversion or dismissal and would prevent that debt from being discharged as it was not provided for in the chapter 13 plan. On the other hand, mistakes do happen, and in those instances you will usually be allowed to amend your schedules.
It is a court order releasing a chapter 13 debtor from all dischargeable debts and ordering creditors not 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: a full or successful plan discharge, which is granted to a debtor who completes all payments called for in the plan, and a partial or unsuccessful plan discharge, which is granted to a debtor who is unable to complete the payments called for in the plan due to circumstances for which the debtor should not be held accountable. A full chapter 13 discharge is broader and discharges more debts than a chapter 7 discharge, while a partial chapter 13 discharge is similar to a chapter 7 discharge.
It is essentially a contract approved by the Bankruptcy Court binding the creditors of the debtor and the debtor to certain terms respecting the repayment (or partial repayment as the case may be) of certain debts. The chapter 13 plan will state how much money or other property the debtor will pay to the chapter 13 trustee, how long the debtor will make payments to the chapter 13 trustee, how much will be paid to each of the creditors and when, and which creditors will be paid outside of the chapter 13 plan.
A chapter 13 trustee is a person appointed by the Office of the United States Trustee to collect payments from the chapter 13 debtor for the purpose of disbursing those payments to the debtor’s creditors in the manner set forth in the debtor’s chapter 13 plan, and to administer the debtor’s chapter 13 case until it is closed.
No. While all fully secured obligations and certain priority debts, such as debts for alimony, maintenance and support and debts for taxes, must be paid in full under a chapter 13 plan, only a percentage of the amount due and owing your general unsecured creditors need be paid. The amount of money paid to your general unsecured creditors will vary depending upon the amount of net disposable income available for distribution.
Usually all of the net disposable income of the debtor and the debtor’s spouse for a period of three to five years must be paid to the chapter 13 trustee. Net disposable income is income received by the debtor and his or her spouse that is that amount of income over and above what is not reasonably necessary for the support of the debtor and the debtor's dependents.
The debtor must begin making payments to the chapter 13 trustee within 30 days after the debtor’s plan is filed in the court, and the plan must be filed with the court within 15 days after the case is filed. The payments must be made regularly, usually on a monthly basis. If the debtor is employed, some courts require the payments to be made by the debtor’s employer, otherwise, the payments can be made by the debtor.
If a joint, cosigned or guaranteed CONSUMER debt is being paid in full under a chapter 13 plan, the creditor may not collect the debt from the joint debtor, cosigner or guarantor. However, if a consumer debt is not being paid in full under the plan, the creditor may collect the unpaid portion of the debt from the joint debtor, cosigner or guarantor.
Yes. Section 362(a) of the Bankruptcy Code (the automatic stay provision) prevents creditors from taking any action to collect debts. The automatic stay also prevents secured creditors from foreclosing, seizing, and repossessing their collateral. Once a creditor learns of the chapter 13 bankruptcy filing, that creditor must immediately stop all collection efforts.
Creditors receive notice of the chapter 13 bankruptcy from the Bankruptcy Court based upon the information you provided in your bankruptcy schedules. The notification process will often take one or two weeks. In the interim, when a creditor calls you should advise them of the bankruptcy filing and provide them with the chapter 13 bankruptcy case number and the date the case was filed. Some cases, however, may require a more proactive approach. In that situation you or your attorney should contact the creditor immediately after filing the bankruptcy petition. Examples of situations requiring immediate notification include: (1) pending litigation, (2) possible repossession, or (3) possible foreclosure.
Yes. In fact, chapter 13 is the ideal vehicle to save your home from an impending foreclosure. Not only will a chapter 13 bankruptcy stop the foreclosure (assuming timely notice is provided to the secured lender), but it will allow you up to three years to bring your mortgage payments current. If you have received a notice of foreclosure, you should give serious consideration to filing a chapter 13 bankruptcy petition.
Any natural person may file under chapter 13 if the person:
• resides in, does business in, or owns property in the United States has regular income;
• has unsecured debts of less than $290,525;
• has secured debts of less than $871,550;
• is not a stockbroker or a commodity broker; and
• 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 a bankruptcy case or received a bankruptcy discharge. Corporations, partnerships and limited liability companies may not file for relief under chapter 13.
Yes. A self-employed person meeting the eligibility requirements for a chapter 13 debtor may file chapter 13 bankruptcy petition. A debtor engaged in business may continue to operate the business during the chapter 13 case.
Yes. A chapter 13 bankruptcy case will stop most civil lawsuits and IRS proceedings. On the other hand, a chapter 13 bankruptcy case will not usually stop divorce or criminal proceedings.
Yes. A financial counselor has no legal right to prevent a person from filing any type of bankruptcy case, including a chapter 13 case.
The Bankruptcy Court may 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) all priority claims will be paid in full under the plan, (4) the plan was proposed in good faith, (5) each unsecured creditor will receive under the plan at least as much as it would have received had the debtor filed under chapter 7, (6) it appears that the debtor will be able to make the required payments and comply with the plan, and (7) each secured creditor receives no less than the value of its collateral (by accepting the plan, by being paid that value, by surrender of the collateral, or by being paid pursuant to the original terms outside of the plan).
If the Bankruptcy Court will not approve the Chapter 13 plan proposed by a debtor, the debtor may modify the plan and seek Bankruptcy Court approval of the modified plan. The Bankruptcy Court will usually give specific reasons for refusing to confirm th e chapter 13 plan. This affords the debtor the ability to appropriately modify the chapter 13 plan in a manner that is acceptable to the Bankruptcy Court. A debtor who does not wish to modify a proposed plan may either convert the plan to chapter 7 or dismiss the case.
Depending on the reason for not making the chapter 13 plan payments, there are at least three options available. One, convert the case to one under chapter 7. Two, modify the chapter 13 plan to reflect your new budget. Three, work out an arrangement with the chapter 13 trustee to bring the plan payments current.
There are three situations in which a chapter 13 debtor will incur post-petition debt. These are: (1) debts for taxes that become payable while the case is pending, (2) utilities that become payable while the case is pending, and (3) consumer debts arising after the filing of the case that are approved by the Bankruptcy Court which debts are necessary for the debtor’s performance under the plan. Other than the above debts, a chapter 13 debtor should not be incurring any debt during the life of the chapter 13 plan.
The debtor should immediately notify the Bankruptcy Court and the chapter 13 trustee in writing of the new address. Most communications in a chapter 13 case are by mail, and if the debtor fails to receive an order of the Court or a notice from the chapter 13 trustee because of an incorrect address, the case may be dismissed. More importantly, however, is the fact that any move will likely mean substantial changes to your budget. You will need to review your bankruptcy schedules and your chapter 13 plan to see what has changed. At this point you will likely need to modify your chapter 13 plan. Try to accomplish before you move as the relief requested might require a hearing.
A chapter 13 debtor has the absolute right to either dismiss or convert their chapter 13 bankruptcy case at any time for any reason.
No. A chapter 13 plan, in order to become effective, need only be approved by the Bankruptcy Court. Unlike chapter 11, the chapter 13 creditors are not afforded the opportunity to vote on the plan. The Bankruptcy Court cannot, however, approve a plan unless the secured creditors are dealt with appropriately. The Bankruptcy Court will approve the chapter 13 plan only if: (1) the secured creditors accept the proposed plan; (2) the secured creditor retains its lien and is paid the full amount of its secured claim under the plan; (3) the debtor surrenders the collateral to the secured creditor; or (4) the secured creditor is paid outside of the chapter 13 plan and its claim remains unmodified by the chapter 13 plan. Also note that unsecured creditors are permitted to file objections to the chapter 13 plan, and that these objections must be ruled on by the Bankruptcy Court before it can approve the chapter 13 plan.
No. It would be unethical for any consumer bankruptcy lawyer to accept payment by credit card knowing that such debt might be discharged through subterfuge. By agreeing to accept legal fees on a credit card, or indirectly from a cash advance obtained for paying a bankruptcy attorney, the bankruptcy attorney is participating in a fraud upon the Bankruptcy Court as well as upon the issuer of the credit card. Such debts are likely not dischargeable (cash advances and charges for luxury goods exceeding $1,150.00 are presumed to be nondischargeagble) and any effort to cloke the charge or cash advance constitutes fraud. This is perhaps best illustrated by the following hypothetical question: Would a credit card issuer, knowing that the credit card charge proceeds would be used to pay your bankruptcy attorney, authorize the charge? Of course not! Don’t do it.
Yes. All events affecting your credit are recorded. That includes prompt payments, slow pays, charge-offs, and judgments as well as a bankruptcy filing. If you are currently contemplating bankruptcy, then it is likely that your current credit rating has already been negatively impacted. A chapter 13 bankruptcy discharge will usually remain on a credit bureau for seven years, whereas a chapter 7 discharge will likely remain on a credit bureau for ten years. However, much, if not all, of the negative impact can be ameliorated. A chapter 13 debtor that continues to make payments timely to creditors paid outside of the chapter 13 plan will have very little difficulty obtaining additional credit at reasonable rates upon discharge. The reality is that most people find they are able to completely rebuild their credit within 3 to 5 years.
A chapter 13 bankruptcy discharge will usually remain on your credit report for a period of seven years.
No. First, you should note that although bankruptcy records are of public record, most employers will never learn of the bankruptcy unless you tell them. Second, if you owe money to your employer you will be required to list your employer as a creditor on your bankruptcy schedules. In so doing, they will learn of the bankruptcy filing from the Bankruptcy Court. Lastly, the Bankruptcy Code specifically prohibits any employer from discriminating against you because you filed a chapter 13 bankruptcy petition.
Absent Bankruptcy Court approval -- No. While you are in chapter 13 you are not allowed to borrow any money absent prior approval from the Bankruptcy Court. That includes using any credit cards.
The advertisements you see respecting “zero down” bankruptcy are misleading and, in our opinion, unethical. Such adds lead you to believe you are receiving a benefit not offered by other lawyers. That is simply not the case. Attorneys advertising “zero down” bankruptcy will not perform any work until they are paid at least something -- just like all other bankruptcy attorneys. Moreover, most chapter 13 bankruptcy lawyers will allow a large portion of their fees to be paid through the chapter 13 plan. The “zero down” bankruptcy advertisement is little more than a ploy to get you in the door and to sign their retainer agreement.
This is an excellent question, and one I wish more people would ask. It is unfortunate, many people who take out debt consolidation loans to pay off credit card debt often lose their homes to foreclosure. You can never borrow your way out of debt. Robbing Peter to pay Paul solves nothing.
On the surface, a debt consolidation loan appears to be a good thing. The debt consolidation loan lowers the amount of payments due each month. The debt consolidation loan to eliminates large monthly credit card debt payments at a high rate of interest and replaces them with a substantially lower monthly payment at a reduced rate of interest. While this looks great, looks can be deceiving.
First, though the interest rate on a debt consolidation loan is lower than that on your credit cards, you will pay more in interest and finance charges over the life of the loan than you might realize because of the extended term. Second, you have converted an unsecured debt that could be wiped out in bankruptcy into a secured debt that cannot be wiped out in bankruptcy absent surrendering your home. Third, if the only way you are able to make the new lower payment on your debt consolidation loan is to continue using your credit cards (albeit to a lesser degree than before) you now risk foreclosure.
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