The Chapter 13 Process Explained
Chapter 13 Bankruptcy is a means to restructure one’s debts. The restructuring takes the form of a plan filed by the debtor which can last up to five years. The plan must include all of the debtor’s net disposable income. This consists of actual income less expenses determined by the “means test” which may be somewhat less that one’s actual expenses. This net disposable income is paid to a Chapter 13 plan trustee who distributes the funds to creditors. This means that every month during the five year plan term the debtor must make a full Chapter 13 Plan payment to the Chapter 13 Trustee. If a payment is missed the Trustee may file a motion to dismiss the case for non-payment. Administrative claims (trustee’s fees and expense) are paid first. Then domestic support obligations followed by tax claims are paid next. Secured claims are then paid and finally unsecured claims. In most cases unsecured claims such as credit card debt receive little or nothing and at no interest.
A Chapter 13 Bankruptcy case can be used to cure mortgage or vehicle loan arrears for up to a five year period. This means that the arrearage plus interest and trustee’s fees is divided by sixty months and then is paid to the secured creditors to ‘make up’ the delinquent payments and bring the loans current. In the case of real estate loans (mortgages) the regular monthly payment must be made as well. The Chapter 13 plan is usually used to “catch up” back payments which the debtor is unable to make or the mortgage company has refused to accept.
The Chapter 13 Bankruptcy case filing not only provides for an automatic stay prohibiting creditors from continuing to contact the debtor or from continuing collection actions or lawsuits but also provides for a co-debtor stay for non-business consumer obligations. This prohibits creditors from pursuing those who share joint obligations with the debtor. This is a feature unique to Chapter 13 cases and does not apply to other chapters of the Bankruptcy Code.
As with a Chapter 7 proceeding, in order to file for relief under Chapter 13 of the Bankruptcy Code, one must first take a financial counseling course. Our firm uses Credit Counseling whose internet course takes an hour. And Review financial and psychological questions and then requires filling out a simple budget. After the internet session is completed a short interview takes place with a counselor to review the figures supplies and to discuss alternatives. This final part usually takes 5 minutes or less. A certificate is then generated by the counseling service and emailed to the attorney. This certificate must be filed with the Bankruptcy Petition or the case must be dismissed, except in very limited circumstances.
In order to file for relief under Chapter 13, a petition must be prepared as well as detailed schedules listing all real and personal property along with the name, address and account number for each secured and unsecured creditor. Accurate current and historical figures must be supplied for income and expense and long with other pertinent information. A plan is also prepared and submitted. A date is then set for a meeting of creditors which takes place where the Chapter 13 Trustee’s Office is located. A representative of the Chapter 13 Trustee’s office presides at the meeting. No judge is present. Creditors get to ask questions. Usually, the only creditors who appear are those with liens on cars or sometime real estate and the IRS. The meeting of creditors usually takes place in the afternoon with the morning devoted to a mandatory financial counseling session. This session as in a Chapter 7 proceeding is required to obtain a bankruptcy discharge.
The next matter is the confirmation hearing. This hearing will be held before either Judge Gargotta or Judge King, depending upon which San Antonio Judge is appointed to the case. He will decide whether the case should be confirmed and addresses any objections to plan confirmation. Once the case is confirmed by court order the Chapter 13 trustee begins to pay creditors in accordance with the confirmed plan.
Once the Chapter 13 plan is completed the debtor receives a discharge and the case is closed. The remaining unpaid portion of the unsecured debt is also discharged and becomes unenforceable. The creditors are permanently enjoined from attempting to collected these debts.
Not all debts are dischargeable in a Chapter 13 proceeding. Domestic support obligations, certain tax claims and student loans as well as certain other limited classes of debts are not discharged. Nevertheless, most other debts are discharged, provided they are properly scheduled on the bankruptcy petition with the correct name, address and account number. Those whose claims are not scheduled may not be discharged.