Chapter 13 Overview
Chapter 13 provides consumers with a way to consolidate debt under federal law and repay creditors a portion of what is owed over time. The idea behind chapter 13 is that the consumer makes sufficient income to pay all current living expenses (rent, food, car, utilities, etc.), but not enough to pay off all debts in full or comply with creditor's demands. In chapter 13, living expenses are paid first, then whatever is left over goes into the consolidation plan. The plan is not based on what you owe (in most cases), it is based on your ability to repay creditors. The calculation of your plan payments involves many variables, but most importantly it is based on your income and expenses. Whatever is left at the end of the month goes into the plan, even if it only pays creditors pennies on the dollar. Chapter 13 can be particularly useful for consumers with assets over the exemption amounts, or non-dischargeable debts.
The Chapter 13 Process
First you meet for a free consulatation with one of our attorneys. At this free consultation the attorney will evaluate your case, discuss the risks and benefits of filing for bankruptcy. After you provide our office with all the required documents your paperwork will be prepared and you will personally sign your documents and take a credit counseling course in our office. In chapter 13 the typical consumer only has one meeting with the bankruptcy trustee. We will go to court with you on this day. The purpose of the meeting is to give creditors a chance to ask questions, although it is very rare that a creditor shows up; it is mostly handled by attorneys. Before you go to your meeting you will complete a financial management course which will help get you back on track financially. Then, when you go to your meeting the trustee may ask you questions about particular items on your petition usually focusing on assets or income. Most meetings take only a few minutes. Some consumers feel some level of anxiety or fear leading up to the meeting with the bankruptcy trustee, but there is no reason to fear the trustee. The trustee is looking for people who are hiding assets or trying to defraud the system, they don't want to harass or scare the common consumer. The meeting will take place in an ordinary conference room or courtroom, and the trustee is not a judge; the setting is informal. After the meeting, the first thing most people say is "...that's it?...that was easy."
In chapter 13, you must submit a plan in which you set out a budget detailing your take-home pay and monthly living expenses. Any excess income is paid to the bankruptcy trustee who then distributes money to creditors on a pro-rata basis. The plan lasts for 36 to 60 months, unless your debts are fully repaid in a shorter period of time. At the end of the chapter 13 plan, any amounts still owing on your unsecured debts are forgiven.
• Mortgage Problems- A benefit of chapter 13 specifically for homeowners is back mortgage payments can be put into the chapter 13 plan and paid off over the plan period, rather than all at once. So long as you can continue to make regular post-petition mortgage payments, the bank can't foreclose on your house because you chose to put mortgage arrearages into a chapter 13 plan. In fact, chapter 13 was originally designed for this purpose, to prevent foreclosures.
- Tax Debt Information- Typically government debts are not dischargeable, however there are great benefits to putting tax debt into a chapter 13 plan. This gives you a chance to budget out a repayment plan in real dollars, the payments you make go directly to reduce the principle. Most people trying to repay back taxes are fighting an uphill battle with interest and penalties working against them, but in chapter 13, you get a break from the government and pay off just what you owe on the day you filed the case.