What is Chapter 13?
A Chapter 13 plan is a procedure under the U.S. Bankruptcy Code to obtain Court protection of a person's property, and to develop a plan of paying creditors by making monthly payments to a Trustee under the Court's supervision.
Who is eligible to file a Chapter 13 plan?
Individuals, couples and sole proprietors of non-incorporated businesses with unsecured debts of less than $250,000 and secured debts of less than $750,000.
How do I file a Chapter 13 plan?
Generally speaking the assistance of a lawyer is needed in order to advise you concerning your rights and obligations in a Chapter 13 plan, and to prepare the necessary papers of filing with the Court.
How does the Chapter 13 plan protect me from my creditors?
A Restraining Order is entered immediately upon the filing of your plan which prevents all of your creditors from filing lawsuits, starting foreclosures or repossessions, or making any direct contact with you concerning your accounts.
How much does it cost?
The Court charges a $160.00 filing fee which has to be paid when your petition is filed. Your lawyer and the Trustee who will be running your plan and dealing with your creditors are entitled to a fee for their services which is set and regulated by the Court. You do not pay any advance attorney's fees. The amount paid to your lawyer is set by the Court and the Trustee will pay your lawyer from your plan payments.
How does the Chapter 13 plan work?
You will make no further payments directly to your creditors, except for your house payment if it is current. Approximately four weeks after your plan has been filed, you will begin making monthly payments to a Trustee of the Court. The Trustee will then pay your creditors on a pro-rata basis depending upon how much you owe. Your plan will normally continue for 3 years, but in no event can it be longer than 5 years.
How much will my plan payment be?
You, your lawyer, and the Trustee will all play a part in setting the amount of your payments and the length of your plan. Your plan payment should be an amount that you can afford based on your income and monthly living expenses. Your plan payments have to be enough to pay your secured creditors, such as car loans, in full. If you are behind on your house payment, it will also be included in your payment to the Trustee.
Will all of my creditors be paid in full?
In some cases they will be, but in most cases it is not possible due to the size of the debts or your income.
What happens if my plan ends and all creditors have not been paid in full?
When your plan ends, the Court enters an Order discharging you from any further legal obligation on your debts even if they have not been paid in full. Long-term debts however, such as house mortgages, will continue to be your obligation after the end of the Chapter 13 plan. Other debts such as government guaranteed student loans and taxes may not be discharged if not paid in full.
Will I lose my house or car if I file a Chapter 13 plan?
Generally speaking the answer is no. The Court restrains foreclosures and repossessions. Normally you will not lose any property. Your car payment will be made by the Trustee, and you will continue to pay your house payment directly to the mortgage lender if you are current. If you are behind on your house payments, the Trustee will catch up the payments you are behind out of your plan payments.
How does a Chapter 13 plan affect my credit standing?
The Court restricts you from obtaining new credit while you are on the Chapter 13 plan. A credit reporting agency such as a Credit Bureau can report that you filed a Chapter 13 plan for a period of 10 years. However, once you complete your plan, you are free to apply for new credit.
Who will be notified that I have filed a Chapter 13 plan?
Each of your creditors will be notified, and the Credit Bureau will normally be aware of your filing by checking the Court records. Most Chapter 13 plans require that payment to the Trustee be made by payroll deduction. Therefore your employer will receive notice from the Trustee's office to deduct your payment from you paycheck.
Can my employer fire me if he/she finds out that I filed a Chapter 13 plan?
No. Federal laws prohibit your employer form firing you or discriminating against you simply because you have filed a Chapter 13 plan.
Do I have to appear in court?
You will need to be present for a meeting with your Trustee in the Bankruptcy Court building, but it generally does not last longer than 5 minutes. No Judge will attend this meeting. We will be present with you, and the main purpose of the meeting is to enter into the Court record the facts concerning your plan.