Chapter 13 FAQs
Frequently Asked Questions About the Chapter 13 Bankruptcy Process
What is Chapter 13 bankruptcy?
Chapter 13 is a type of bankruptcy in which a debt repayment plan is used to consolidate debts and make payments on your debt over a 3 to 5 year time frame. You file a plan with the bankruptcy court and you make payments to a Chapter 13 Trustee, based upon your ability to pay. There is no requirement that unsecured creditors be paid anything in a Chapter 13 but are usually paid some percentage on the dollar. Unsecured debts stop accruing interest during the life of your plan. Chapter 13 is also called the “wage earner” bankruptcy and requires that you have a steady source of income, such as wages, self-employment income, unemployment income, or social security income, to be eligible.
What is a Chapter 13 plan?
A Chapter 13 plan is the filed document that a bankruptcy debtor presents to the bankruptcy court. It is the roadmap for the rest of the case. The plan is served on all creditors and states the amount of money the debtor will pay to the Chapter 13 trustee on a monthly basis, the duration of the plan, and the amounts to be paid to each class of creditors. For instance, it might state that mortgage arrears and back taxes will be paid off at no interest over a sixty month period. It also might provide for the surrendering of a car to provide for a car lender’s secured claim or it might give the debtor the ability to strip a wholly unsecured second mortgage. A plan is flexible and might have provisions to account for an anticipated increase in income or the sale of a property.
What is confirmation of a Chapter 13 plan?
A Chapter 13 plan must be approved by the bankruptcy court. That process is called confirmation. A case can be recommended for confirmation by the Chapter 13 trustee at the initial meeting of creditors if everything is progressing normally in a case. The court would then issue the confirmation order a few days thereafter. In some cases, a creditor may file an objection to confirmation which means that the matter will be heard in front of a bankruptcy judge at a confirmation hearing. Once the objection is resolved, the judge will sign a confirmation order. In any event, a case cannot move forward without the debtor’s Chapter 13 plan being confirmed at some point. If a plan cannot be confirmed, the case will be dismissed.
Can the plan be modified?
Yes. A debtor can file a motion at any point during the case to modify the terms of a confirmed Chapter 13 plan. A debtor may have lost a job or had a medical problem and need to reduce his or her plan payments. Sometimes a debtor just gets behind on the plan payments and cannot get caught up absent a modification. The debtor might be facing the possible dismissal of the case. A motion must be filed on notice to all creditors with supporting evidence. If there are no objections the bankruptcy court can approve the terms of a modified plan. The debtor can then stay in Chapter 13 and still receive a discharge.
Who is a Chapter 13 trustee?
A Chapter 13 trustee is an individual who is appointed by the court to act as the trustee to the bankruptcy estate of each person who files for Chapter 13 bankruptcy relief. The trustee’s duties are to collect payments from the debtor, make payments to creditors, ensure that the plan is followed, and administer the case until it is closed. The trustee also will be the one who will examine the debtor under oath at his or her meeting of creditors.
What is a Chapter 13 discharge?
A Chapter 13 discharge is a court order that releases a debtor from all of his or her dischargeable debts. The discharge also orders creditors not to attempt to collect the debt from the debtor after the case is closed. A debt that is discharged is a debt that the debtor does not have to pay. A Chapter 13 discharge occurs once the Chapter 13 plan is completed. If a debtor cannot complete his or her Chapter 13 plan, the debtor would need to convert the case to Chapter 7 and receive a discharge under that Chapter. A dismissal of a Chapter 13 case does not discharge any debts.
What debts are not dischargeable in Chapter 13?
The debts that excluded from discharge in a Chapter 13 are: debts for domestic support obligations (alimony and child support), debts for death or personal injury caused by the debtor’s operation of a motor vehicle while intoxicated, tax debts attributed to unfiled returns, taxes for which a return was late-filed within the last two years, taxes for which a return was due within the last three years, debts for restitution or criminal fines, debts for fraud, debts for student loans (unless hardship shown), debts for damages in a civil case caused by willful or malicious conduct, debts incurred while the plan was in effect, and debts owed to creditors not given notice of the Chapter 13.
What is a Proof of Claim?
A claim is any right to payment held by a person or entity against a person or entity that filed bankruptcy. The written statement filed in a bankruptcy case setting forth a creditor’s claim is called a proof of claim. The proof of claim should include a copy of the documentation giving rise to the claim, as well as evidence of secured status if the claim is secured. In certain cases, the notice of meeting of creditors sent to all creditors listed includes a proof of claim form. In Chapter 13, a creditor must file a proof of claim to participate in the process.
Is there a deadline for filing a Proof of Claim?
In a Chapter 13 case, the deadline (bar date) for creditors who have claims against the debtor is detailed in the Notice of Chapter 13 Bankruptcy, Meeting of Creditors and Deadlines. The date should be not exceed ninety days after the first date set for the Meeting of Creditors. It is longer for government entities.
What is a lien strip?
Lien stripping allows a Chapter 13 debtor to remove a junior mortgage secured against the debtor’s real property. Lien stripping does not apply to first mortgages. Lien stripping is available only for junior mortgages, which means any mortgage that is recorded after the prior (or “senior”) mortgage has been recorded. To qualify for lien stripping, the value of the real property has to be less than the amount owing on the senior mortgage(s). This is generally referred to as being “upside down” on your mortgage. If the value of the property is less than the amount owed on the first mortgage, then a motion can be filed in the bankruptcy court to “strip off” the junior mortgage from the property. Basically, the bankruptcy court values the mortgage as zero as of the date of the bankruptcy filing. Once a junior mortgage is stripped off, it is no longer a lien against the house. All amounts owed on the junior mortgage become an unsecured claim in the Chapter 13. If the Chapter 13 is successfully completed, then the unpaid amount owed on the junior mortgage is discharged and never has to be paid. The mortgage company will then have to reconvey its deed of trust.
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