A Chapter 13 bankruptcy is called a reorganization form of bankruptcy. The Debtor in a Chapter 13 bankruptcy proposes a “Chapter 13 Plan”where the Debtor pays the Chapter 13 Trustee a specified monthly payment each month to be distributed to the Debtor’s creditors as the Chapter 13 Plan provides or on a pro rata basis. The amount of the monthly payment is determined by subtracting the debtor’s monthly household and if applicable, business expenses and payments he is allowed to make outside the Chapter 13 Plan from the income from all sources the debtor receives. This leaves the Debtor’s disposable income on which the Plan payment is based. The Debtor’s Chapter 13 Plan is usually a period from a minimum of three years to a maximum of five years. The Debtor’s total payments under the Chapter 13 Plan must pay creditors at least as much money over the term in present dollars that the creditor would have received if the Debtor filed a Chapter 7 bankruptcy. If the Court finds that the creditors will receive at least as much money as they would receive in a Chapter 7 case and the Debtor is committing substantially all disposable income to his Chapter 13 Plan to his creditors, then the Court will generally approve the Plan. The Debtor will receive a discharge of any remaining unsecured debt still owing at the end of his Chapter 13 Plan provided all Plan payments have been made.
Eligibility to File Chapter 13
Any person is eligible to file Chapter 13 bankruptcy provided his debts do not exceed $336,900.00 in unsecured debt and $1,010,650.00 in secured debt (Note: the debt limits are re-adjusted the 1st of April each year based on the consumer price index). The person must have regular income. You need not be a United States citizen to file bankruptcy. Partnerships, corporations, or similar business entities are not eligible to file Chapter 13 bankruptcy. An individual with a business may file bankruptcy provided all personal and business debts due not exceed the debt limits specified. An estate of a deceased person cannot file bankruptcy, but an incompetent through a court appointed guardian may file.
Information Needed to File Bankruptcy
The attorney needs a full and complete list of all the Debtor’s assets, creditors (with addresses and account numbers), and detailed answers to basic financial questions required of each debtor in every bankruptcy case, and other information about your income and expenses. You will need to furnish verification of your expenses such as past bills or payments on such items as utilities, etc. You will need six (6) months worth of pay stubs from paychecks, past two years’ tax returns, copies of six (6) months of bank statements showing balances in your bank accounts, tax statements or appraisals to show the value of real estate, most recent statement regarding any retirement accounts, copies of any pleadings or claim forms filed involving any action for damages or money you may have against a third party, and copies of any invoices or notes regarding a person that owes you money are just an example of other documentation you will need to bring to your attorney. You will also need to prove your identity by bringing a copy of your drivers license and social security card.
The Bankruptcy Court
Bankruptcy is a federal court proceeding. The Bankruptcy Court is the Court that is responsible for deciding all contested matters, approving the Chapter 13 Plan, and will issue the discharge of debts in the case upon completion of the Debtor’s Chapter 13 Plan.
Documents Filed with the Bankruptcy Court
The bankruptcy case is commenced upon the filing with the Court of a bankruptcy petition and list of the twenty largest creditors . You will also need to file within the time set by law the schedules, statement of affairs, list of income and expenses from which your Chapter 13 Plan payments are determined, and a “Preliminary Chapter 13 Plan”. It is extremely important your schedules are accurate and the income and expenses you list are accurate and can be verified by supporting documentation.. Inaccurate schedules unsupported or undocumented expenses or income can lead to the dismissal of your case or denial of your Chapter 13 Plan, so be as careful as possible in completing and accurately providing all required information.
The Automatic Stay
The Bankruptcy Code provides upon filing of a bankruptcy an automatic stay or an injunction commences that protects the Debtors and the property of the estate from any efforts to collect a debt or enforce security interests held by a creditor. A creditor, person, or entity that violates that stay without the court agreeing to lift the stay may be liable for damages, penalties, and legal costs, as assessed by the Bankruptcy Court. The automatic stay stops harassing phone calls, foreclosures, lawsuits, repossessions, etc. The automatic stay is one of the most important aspects of a bankruptcy. It continues throughout the bankruptcy case until the discharge is granted or the Court lifts the stay.
The Chapter 13 Trustee
The Chapter 13 Trustee is appointed in every Chapter 13 case. Each division usually has a least one Chapter 13 Trustee who is responsible for all cases in that division unless a conflict arises. The Chapter 13 Trustee serves as a dispersing agent whom the Debtor will send his monthly payments under the Chapter 13 Plan and the Trustee will then write and send checks to creditors as specified in your Chapter 13 Plan. The Chapter 13 Trustee is also responsible for administering your case, reviewing your schedules, insuring all the duties of a Debtor are completed, and filing any legal actions required such as objections to exemptions, filing an objection to the Chapter 13 Plan if legal guidelines are not followed, objections to claims, and similar legal actions if required. The failure of the Debtor to cooperate with the Trustee in his case can result in the dismissal or conversion of the Chapter 13 case.
A debtor who is not a corporation, partnership, or similar entity has a right to claim property designated by state or federal statute as exempt. In a Chapter 13 case the Debtor may keep non exempt assets provided the value of the non exempt asset is paid to the creditors in the monthly payments under the Plan. The Debtor or the Chapter 13 Trustee may also sell non exempt assets and pay the proceeds into the Chapter 13 Plan for the Chapter 13 Trustee to distribute the funds to creditors. In most cases in Texas, all assets of a Debtor are exempt and thus protected from forced sale.
Disadvantages and Advantages of a Chapter 13
Disadvantages of a Chapter 13 include the requirement of a three to five year commitment of your disposable income and the inability to incur debt outside the ordinary course of business during you Chapter 13 Plan. You will not be able to obtain a discharge until you make all your payments under the Plan. Advantages include the ability to cure defaults and resume regular monthly payments on contractual obligations such as mortgages, leases, etc. In a Chapter 13 you can pay back the IRS and state taxing agencies over the term of the Plan and in some cases stop penalties and interest from accruing. In a Chapter 13 case you may also be able to reduce your secured indebtedness on assets that serve as collateral and lower your monthly payments through the Plan in certain circumstances. Lastly, certain debts that may not be dischargeable in a Chapter 7 case, may be found to be dischargeable in a Chapter 13 case (consult our office for specifics on the debts that can be discharged).
The Meeting of Creditors
The Meeting of Creditors (also called the “341 Meeting”) in a Chapter 13 case is presided over by the Chapter 13 Trustee or one of his staff hearing officers. Creditors may also appear to ask questions at the meeting. In a Chapter 13 case on the day of the Meeting of Creditors you will also be required to attend a Financial Management Class designed to help you organize your finances, help you learn to budget, and lastly give you help in re-establishing your credit post filing. The course will last the morning and is furnished by the Chapter 13 Trustee to help you succeed in fulfilling the requirements of your Plan. After the Financial Management class you will attend your creditor’s meeting. You will be asked many of the same questions asked in a Chapter 7 case (see Chapter 7 Meeting of Creditors) and special emphasis will be paid to your budget and expenses by the hearing officer presiding over your meeting. The hearing officer wants to be sure your income and expenses are accurate, not out of line, and supported with proper documentation. A business Debtor is also required to complete a special document to be filled out prior to the meeting that will be sent to the Debtor by the Chapter 13 Trustee.
The Confirmation Hearing
After several weeks to allow the deadline for claims to be filed has passed, the final Chapter 13 Plan will be prepared. The Plan will be mailed to all creditors. If the Debtor has met all requirements to allow confirmation of the Plan and no creditor or the Chapter 13 Trustee objects the Court will approve the Chapter 13 Plan.
Acts that Can Cause Your Bankruptcy To Be Dismissed or Converted or Chapter 13 Plan be Denied
Your Chapter 13 Plan will not be confirmed if the Plan was proposed in bad faith or in a manner forbidden by law, or fails to comply with the provisions of the Bankruptcy Code. Additionally, the Plan on the effective date of the Plan must pay unsecured claims not less that they would receive under a Chapter 7 liquidation. The Chapter 13 Trustee and the Court must also be convinced the Plan is feasible and all the Debtor’s projected disposable income is being put in the Plan. The Chapter 13 case can be dismissed or converted to a Chapter 7 case if the case is filed in bad faith, the Debtor does not have regular income or regular income to fund a Plan that is in excess of living and /or business expenses. Schedules that are inaccurate or false may support a finding of bad faith as well.
Cost and Filing Procedure with Law Office of Gregory A. Ross, P. C.
The first step to see what is the best option for your financial problem is to contact the firm to set up an initial consultation. There is no cost for the initial consultation. We will discuss with you various options to resolve your financial problems after reviewing your individual finances, assets, and goals. We will suggest solutions to your financial problems that will best resolve your specific situation and achieve your desired goals.
The attorney fee for your bankruptcy is determined by the Court and is currently $3,000.00 ($3,500.00 for business cases). The amount to be paid up front will be determined at your initial consultation. The filling fee is the same in every case under this Chapter and is in addition to the attorney fee. It is possible in a Chapter 13 case for a portion of the fees to be paid by the Chapter 13 Trustee from payments you will make to him each month. The attorney at your consultation will give you forms for information that your attorney will need to prepare the petition, schedules, and statement of affairs in your case. If you decide bankruptcy is the best way to resolve your financial problems, you will complete the worksheet and set up a second appointment with a representative of the firm to review the worksheet with you to insure it is complete and that all questions are answered. You will pay a non-refundable $300.00 at this time. The firm will have the final paperwork ready for your signature in most cases within three business days. Your papers will be filed after you have reviewed the petition, schedules, and statement of financial affairs for accuracy completeness and signed them. You will also be required to pay the remaining up front fees at this point.
Contact us at 940-692-7800 to discuss your legal needs.