CHAPTER 13 Bankruptcy

A chapter 13 case begins by filing a petition with the bankruptcy court serving the area where the debtor has a domicile or residence. A husband and wife may file a joint petition or individual petitions.  Unless the court orders otherwise, the debtor must also file with the court:

• schedules of assets and liabilities;
• a schedule of current income and expenditures;
• a schedule of executory contracts and unexpired leases;
• a statement of financial affairs.

The debtor must also file:

• a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling;
• evidence of payment from employers, if any, received 60 days before filing;
• a statement of monthly net income and any anticipated increase in income or expenses after filing;
• a record of any interest the debtor has in federal or state qualified education or tuition accounts. 

The debtor must provide the chapter 13 case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case began).  

In order to complete the Official Bankruptcy Forms that make up the petition, statement of financial affairs, and schedules, the debtor must compile the following information:

1. A list of all creditors and the amounts and nature of their claims;
2. The source, amount, and frequency of the debtor’s income;
3. A list of all of the debtor’s property; and
4. A detailed list of the debtor’s monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse is required so that the court, the trustee and creditors can evaluate the household’s financial position.

When an individual files a chapter 13 petition, an impartial trustee is appointed to administer the case. The chapter 13 trustee both evaluates the case and serves as a disbursing agent, collecting payments from the debtor and making distributions to creditors.

Filing the petition under chapter 13 “automatically stays” (stops) most collection actions against the debtor or the debtor’s property. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even make telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor.

Between 21 and 50 days after the debtor files the chapter 13 petition, the chapter 13 trustee will hold a meeting of creditors.  Currently, most of these meetings are performed over the phone in Mr. Swift’s office.  The debtor(s) must attend the meeting and answer questions regarding his or her financial affairs and the proposed terms of the plan. During this meeting, the trustee places the debtor under oath, and both the trustee and creditors may ask questions.  In order to preserve their independent judgment, bankruptcy judges are prohibited from attending the creditors’ meeting.  The parties typically resolve problems with the plan either during or shortly after the creditors’ meeting. 

In a chapter 13 case, to participate in distributions from the bankruptcy estate, unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. After the meeting of creditors, the debtor, the chapter 13 trustee, and those creditors who wish to attend will come to court for a hearing on the debtor’s chapter 13 repayment plan.

Unless the court grants an extension, the debtor must file a repayment plan with the petition or within 14 days after the petition is filed.  A plan must be submitted for court approval and must provide for payments of fixed amounts to the trustee on a regular basis, typically biweekly or monthly. The trustee then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims.

There are three types of claims: priority, secured, and unsecured. Priority claims are those granted special status by the bankruptcy law, such as most taxes and the costs of bankruptcy proceeding. (3) Secured claims are those for which the creditor has the right take back certain property (i.e., the collateral) if the debtor does not pay the underlying debt. In contrast to secured claims, unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by the debtor.

Within 30 days after filing the bankruptcy case, even if the plan has not yet been approved by the court, the debtor must start making plan payments to the trustee. No later than 45 days after the meeting of creditors, the bankruptcy judge must hold a confirmation hearing and decide whether the plan is feasible and meets the standards for confirmation set forth in the Bankruptcy Code.   Creditors will receive 28 days’ notice of the hearing and may object to confirmation.

If the court confirms the plan, the chapter 13 trustee will distribute funds received under the plan “as soon as is practicable.”  If the court declines to confirm the plan, the debtor may file a modified plan.  The debtor may also convert the case to a liquidation case under chapter 7. 

A chapter 13 debtor is entitled to a discharge upon completion of all payments under the chapter 13 plan so long as the debtor:

1. certifies (if applicable) that all domestic support obligations that came due prior to making such certification have been paid;
2. has not received a discharge in a prior case filed within a certain time frame (two years for prior chapter 13 cases and four years for prior chapter 7, 11 and 12 cases);
3. has completed an approved course in financial management

The court will not enter the discharge, however, until it determines, after notice and a hearing, that there is no reason to believe there is any pending proceeding that might give rise to a limitation on the debtor’s homestead exemption. 

The discharge releases the debtor from all debts provided for by the plan or disallowed (under section 502), with limited exceptions. Creditors provided for in full or in part under the chapter 13 plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations.

Debts not discharged in chapter 13 include certain long term obligations (such as a home mortgage), debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor’s conviction of a crime. To the extent that they are not fully paid under the chapter 13 plan, the debtor will still be responsible for these debts after the bankruptcy case has concluded. 

The bankruptcy law regarding the scope of the chapter 13 discharge is complex and has recently undergone major changes. Therefore, debtors should consult competent legal counsel such as the Law Office of Stephen H. Swift, P.C.  prior to filing regarding the scope of the chapter 13 discharge.