- What are the main purposes of bankruptcy for individuals who cannot pay their debts?
For individuals who cannot pay their debts, bankruptcy has two main purposes. First, bankruptcy operates to give the debtors a "fresh start" by canceling many of their debts, through an order of the court. Second, bankruptcy operates to give the people who are owed money - the creditor - a fair share of the money that the debtors can afford to pay back.
- What is a Chapter 7 and how does it work?
A Chapter 7 bankruptcy is also called a straight or ordinary bankruptcy. In a Chapter 7 bankruptcy, debtors give up non-exempt property (often called luxury items) they own at the time they file the bankruptcy case. A trustee sells this property and uses the proceeds to pay creditors. The debtors receive their discharge shortly after the case is filed. The discharge relieves the debtor from the obligation of paying certain debts. In this way, Chapter 7 debtors are allowed to keep the money that they earn after filing the bankruptcy case, as well as most other property that they obtain after the filing.
- Who can file for bankruptcy?
Any person who resides in, does business in, or has property in this country can file a chapter 7 bankruptcy.
- How much does it cost to file a chapter 7 bankruptcy?
Your cost is divided into two categories. One, the filing fee is $200.00 and must be paid through your attorney to the bankruptcy court. Two, attorney fees vary with the complexity of your case.
- How often can I file bankruptcy?
The discharge in a chapter 7 case only covers the debts that were incurred before the case was filed. The bills that a debtor incurs after the case is filed are not discharged. The hope is that after their old debts are canceled by the discharge, debtors will be able to pay their new obligations as they come due. But unexpected circumstances, such as illness or loss of employment, may again put debtors in a situation where they cannot pay their bills. In this situation, a debtor could file another Chapter 7 case, but there might not be a right to discharge. After a debtor receives a discharge in a Chapter 7 case, the debtor only has the right to receive a discharge in a later Chapter 7 case if the later case is filed at least six years after the first case was filed. However, even during the six-year waiting period, debtors may still be able to obtain relief in a Chapter 13.
- Where will my bankruptcy be filed?
In the United States District Court in the district where you reside or where you work. The Bankruptcy Court is a part of the United States District Court. Ebert Law Offices, P.C. limits its practice to the Fort Worth Division of the Northern District of Texas.
- Can husband and wife file a joint bankruptcy petition?
Yes. The bankruptcy laws provide that a husband and wife may file a joint bankruptcy petition, using the same set of forms. Only one filing fee is charged for the joint petition.
- Are all debts incurred prior to filing bankruptcy discharged in Chapter 7?
No. There are a number of types of debts that are excepted from the discharge given in Chapter 7. Among the most common debts are certain taxes, fraudulently incurred credit card debt, family support obligations (including child support and alimony), and federally insured student loans. A debtor with debts of this kind can still receive a discharge of other debts but, after the bankruptcy, the "excepted" debts will still be owing (less any payments made through the bankruptcy itself). Additionally, Chapter 7 debtors who engage in certain misconduct connected with the bankruptcy (like failing to disclose assets) may be denied a discharge entirely. However, many of the debts that are excepted from discharge in Chapter 7(fraudulent credit card debt for example) maybe discharged through a Chapter 13. Other types of debts (family support and student loans, for example) are excepted from discharge in Chapter 13 as well as Chapter 7.
- Do I have to go to court?
You may have to appear on two occasions. The first occurrence will be approximately one month after your petition is filed. This meeting is called "the First Meeting of Creditors" or the "Section 341 Meeting". You will be put under oath and questioned about the events that led to your filing bankruptcy, about your assets and your liabilities. You may not have to attend the second hearing, which is called the Discharge/Reaffirmation hearing. This hearing is the formal hearing where your discharge is granted. The only time you will have to attend the discharge -reaffirmation hearing is in the event a creditor is challenging your right to a discharge.
- Who is the bankruptcy trustee?
The trustee is an officer of the court and is usually a practicing attorney who is appointed by the court to gather your non-exempt property, convert it to cash, and distribute the cash to your creditors.
- What are my responsibilities to the trustee?
You are required to cooperate with the trustee. If you refuse to cooperate, you may jeopardize your right to earn a discharge.
- Do all creditors have to be listed on bankruptcy schedules?
Yes. All of the debts have to be scheduled, with the name and address of the creditor. This is so each creditor can receive notice of the bankruptcy, and get their fair share of any money that is paid to creditors. Sometimes debtors think they should omit a creditor because they want to continue to pay the debt. Omitting a creditor violates the law and is unnecessary, because a debtor can always choose to pay a debt voluntarily, even though the debt has been discharged. Creditors, however are prohibited from taking any action to collect a discharged debt.
- What should a debtor do if a creditor does demand payment of a debt that is listed in the bankruptcy?
If a creditor listed in the debtor's schedule, attempts to collect a scheduled debt, the debtor should inform the creditor a bankruptcy case has been filed and which prohibits all collection efforts. If an attorney represents the debtor, the debtor should give the attorney's name and telephone number to the creditor. If the debtor is not represented by an attorney, the debtor should give the creditor additional information about the case - the date of filing. The debtor should consult with an attorney to consider further action.
- Does a bankruptcy automatically remove liens - such as Mortgages - against a debtor's property?
No. Liens can be placed on a debtor's property in many different ways. Some are by agreements, like mortgages and auto liens. Others are by operation of law, like property tax liens on a debtor's home. And some liens are to enforce judgments that have been entered against the debtor. Certain liens can never be removed in a bankruptcy case except by paying the underlying indebtedness. Other liens can only be removed if special action is taken in the bankruptcy case. So, if a debtor has any question about liens on his or her property, these matters should be discussed with an attorney.
- How do I know when my bankruptcy case is completed and I am no longer in bankruptcy?
At the conclusion of an individual's bankruptcy case, the court enters an order closing the case, and a copy of this order is sent to the debtor. Unless the trustee has assets to distribute to creditors, Chapter 7 cases are closed fairly quickly.
- How does bankruptcy affect my credit rating?
Issuers of credit are free to consider the fact of a bankruptcy filing in deciding whether to extend credit. Bankruptcy filing can be listed in credit reports for up to 10 years. Some issuers of credit may decide to extend credit regardless of a bankruptcy. Others may be willing to extend credit only after a number of years have passed, or until the bankruptcy filing is no longer reported on the credit report.
- What happens if my case contains non-exempt assets?
The trustee will immediately begin to collect all of your non-exempt assets. Your creditors may file claims any time within 90 days after your First Meeting of Creditors. The trustee will examine these claims and object to those he believes improper. All claims not objected to will be approved by the court.
- What are exempt assets?
Both the Federal Government and the State of Texas have defined exempt assets. After examining your situation, an election will be made between the two options. Generally the options are:State Exemptions:
- Homestead, subject to purchase money, improvements, tax lien and consisting of
- Not more than ten urban acres: or
- Not more than 100 rural acres (200 acres for a family).
- Personal Property:
- Without limit
- All current wages
- IRA's and most retirement plans.
- Prescribed health aides
- The following not to exceed $30,000.00 ($60,000 for a family).
- Unpaid commission of $7,500.00 for a single person/$15,000 for a family.
- Home furnishings.
- Provisions for consumption.
- Tools of the trade including boats and motor vehicles.
- Jewelry up to $7,500.00 ($15,000 for a family).
- Two firearms.
- Athletic and Sporting equipment (including bicycles).
- Motor vehicles, one for each licensed driver and person who must rely on a licensed driver for transportation.
- Certain livestock.
- Household pets.
- Present value of any Life Insurance Policy.
- Without limit
- Unlimited insurance benefits and cash value.
- Proceeds to be paid under compensation laws including unemployment, workers compensation and crime victim benefit.
Note:Personal property may not be converted from non-exempt to exempt in an effort to defraud creditors.Federal Exemptions (per debtor)
- $16,160 in value for real or personal property used as a residence
- Up to $2,575 in value in any one motor vehicle.
- Up to $425 in value in any particular item of household furnishings, or wearing apparel, up to a total of $8,625
- Up to $1,075 in jewelry held for personal use
- Up to $1,625 in tools of the trade
- Any unmatured life insurance contract you own, except for a credit life insurance contract
- The right to received certain support and disability payments
- Any property not otherwise protected in an amount not to exceed $800 plus any unused amount of the $8,080 in (1) above
- Homestead, subject to purchase money, improvements, tax lien and consisting of
- How will the court contact me about orders that I am to follow?
The order will be mailed to you. It is very important that you insure the court has your correct address. It is your responsibility to see that the court has your correct address.
- What should I do if I move or change address?
You must notify the court and your attorney in writing of your change in address.
- Do I lose any of my rights, such as the right to vote by filing bankruptcy?
No. Bankruptcy is a civil, not a criminal proceeding. You do not forfeit any of your civil rights by filing. Also, neither a utility nor a governmental unit may discriminate against you because you have filed for bankruptcy relief.
- Will news of my bankruptcy be published?
When your bankruptcy papers are filed, they become public records. Credit reporting agencies will generally report the filing. Newspapers or other media generally do not publish or report consumer bankruptcies unless the debtor is a well known or public person.
- Are my out-of-state debts discharged in the bankruptcy?
Yes. The Supremacy Clause of the United States Constitution empowers federal law, therefore bankruptcy laws, with precedence over state laws. Bankruptcy is a federal proceeding. The Bankruptcy Court has the jurisdiction and power to discharge debts contracted anywhere in the country.
- Will I lose all of my property if I file bankruptcy?
You will only have to turn your non-exempt property over to the trustee in bankruptcy. Under Texas law and under the Federal law, certain property is safe from general unsecured creditors and the bankruptcy trustee. Property you may keep is called exempted property.
- What, if any, debts should I pay prior to filing a Chapter 7 bankruptcy?
You should direct your limited resources to what is most necessary for you and your family - typically food, clothing, shelter and utility service. Unfortunately there is no universal applicable list of the order in which debts should be paid. However, the following fifteen rules may help you set your priorities.
- Always pay your necessities first. Usually this means food and essential medical expenses.
- Next pay your housing-related bills. Keep up your mortgage or rent payments if at all possible. If you own your home, real estate taxes and insurance must also be paid unless they are included in the monthly mortgage payment. Similarly, any condo fees or mobile home lot payments should be considered a high priority. Failure to pay these debts can lead to the loss of your home.
- Pay what you must to keep essential utility service. While this may not always require full payment, whatever payments are necessary should be made if at all possible. Working hard to keep your house or apartment makes little sense if it is not livable because you have no utilities.
- Pay car loans or leases next of you really need your car. You will usually make your car loan or lease payments next after food, housing costs, medical expenses, utilities and clothing. You may even want to pay for the car first if the car is essential to holding onto your job. If you do keep the car, stay current on your insurance payments too. Otherwise the creditor may buy at your expense, even more costly insurance that gives you much less protection. In Texas it is illegal not to have automobile liability coverage. If you can do without your car or one of your cars, you not only save on car payments, but also on gasoline, repairs, insurance and the like.
- You must pay your child support debts.
- Income tax debts are a high priority. You must pay your current year's income taxes that are not automatically deducted from your wages. You must also file your tax returns timely, even if you cannot afford to pay any balance due. If you are unable to pay required income tax obligations, you may consider filing a chapter 13 bankruptcy. In a chapter 13, interest and penalty cannot accrue during the repayment time.
- Loans without collateral are a very low priority. Most credit card debts, attorney, doctor and hospital bills, and other debts to professionals, open accounts with merchants, and similar debts are a low priority.
- Loans with only household goods as collateral are a very low priority. Sometimes a creditor requires you to put up some of your household goods up as collateral on a loan. You should generally treat this loan the same as an unsecured debt, that is, as a low priority. Creditors rarely seize household goods because they have little market value, it is hard to seize them without court process, and it is time consuming and expensive to use a court process to seize them.
- Do not move a debt up in priority because the Creditor threatens to sue. Many threats to sue are not carried out. Even if the creditor does sue, it will take a while for the collector to be able to reach your property, and much of your property may be exempt from seizure. Additionally, many debt collectors violate federal law in the manner by which they attempt to collect this obligation. If a violation occurs, you may be entitled to receive damages from the debt collector. If you believe a violation has occurred, talk to one of our attorneys about possible alternatives.
- Do not pay when you gave good legal defenses to repayment. Some examples of legal defenses are that goods purchased were defective, or that the creditor is asking for more money than it is entitled to. If you have a legal defense, you should obtain legal advice to determine whether your defense will succeed. In evaluating these options, remember that it is especially dangerous to with held out mortgage or rent payments without legal advise.
- Court Judgments against you move up in priority, but often less than you think. After a collector obtains a court judgment, that debt often should move up in priority, because the creditor can enforce that judgment by asking the court to seize certain of your property, wages, and back accounts. Nevertheless, how serious a threat this really is will depend, according to Texas law, on the value of your property and your income. It may be that all your property and wages are protected under state law, and you should pay this debt only after more pressing obligations.
- Student loans are a medium priority debt. Student loans should generally be paid ahead of low priority debts, but after top priority debts. Most delinquent student loans are backed by the UnitedStates and federal law provides special collection remedies against you, which other creditors do not, such as seizure of your tax refund and denying you new student loans and grants.
- Debt collection efforts should never move up a debt's priority. Be polite to the collector, but make your own choices about which debts to pay based on what is best for your family. Debt collectors are unlikely to give you good advise, Debtor collectors may be most aggressive to get you to pay debts which you should actually pay last. You can stop debt collection contacts and have legal remedies to deal with collection harassment.
- Threats to ruin your credit record should never move up a debt's priority. In many cases, when a collector threatens to report your delinquency to a bureau, the creditor has already provided the credit bureau with the exact status of the account. And if the creditor has not done so, a collector hired by the creditor is very unlikely to do so. In fact, your mortgage lender, your car creditor, and other big creditors are much more likely to report your delinquency (without any threat) than is a debt collector that threatens you about your credit record.
- Refinancing is rarely the answer. You should always be careful about refinancing. It can be very expensive and it can give creditors more opportunities to seize your important assets. A short-term fix can lead to long tern problems.
- What is a Chapter 13 Plan and how does it work?
A Chapter 13 Plan is a proceeding under the Federal Bankruptcy laws where a person turns his debts, together with a plan for repaying them over to the Bankruptcy Court. The party filing the plan (the debtor) will make regular installment payments to a person called the Chapter 13 Trustee. The Trustee collects the installment payments and pays required creditors in the manner prescribed in the Plan. While the Plan is in effect the court prevents collection efforts from all creditors.
- How does Chapter 13 differ from ordinary bankruptcy?
In a straight (or ordinary) bankruptcy, the debtor does not pay off his/her debts. Instead, he/she must turn all over all of his/her non-exempt property to the Chapter 7 Trustee. The Trustee will sell all non-exempt assets. Creditors are paid from the proceeds of this sale. In a Chapter 13, you are not declared "bankrupt" and you may keep all of your property. Additionally, creditor's claims may be completely satisfied. The fundamental difference between a 7 and a 13 is that a 7 discharges debts. In a 13, you have the opportunity to 1) pay what you owe or, 2) pay debts that are not discharged in a Chapter 7.
- When is a Chapter 13 Plan Preferable to ordinary bankruptcy?
A Chapter 13 is favored in comparison to straight bankruptcy in four situations:
- When you have the desire and the income to pay your debts, but need extra time or the court's protection;
- When you have valuable non-exempt assets, which may be seized by the chapter 7 bankruptcy trustee;
- If you owe certain tax debts; and
- If you have filed a straight bankruptcy in the last six years.
- Will I lose any property if I file a Chapter 13?
No. Under a Chapter 13 plan, your debts are satisfied by the installment payments to the Chapter 13 Trustee. At your option, you may elect to surrender collateral to the secured party. If you surrender property through the Chapter 13, you will cancel the debt equal to the value of the property surrendered.
- Will my Creditors be allowed to collect finance charges while I am in a Chapter 13?
Yes and No. Your general (unsecured) creditors will not be allowed to collect interest, penalties, or finance charges which accrue during the life of your plan. General Creditors may only collect the amount owed to them on the day your Chapter 13 is filed. Secured Creditors on the other hand, will be allowed to collect interest up to the value of the collateral pledged against the claim.
- How does filing under Chapter 13 affect lawsuits and attachments that have already been filed against me?
The filing of Chapter 13 automatically stays (stops) all lawsuits, garnishments, attachments, and other attempts by your creditors to take your property. A few days after your case is filed, the Bankruptcy Court will mail a notice to all of your creditors ordering them to stop all action against you. If you cannot wait this long for relief, you or your attorney may notify any creditor of the automatic stay.
- Will my creditors be allowed to attach my wages or my property during the plan?
No. As long as your Chapter 13 Plan is in effect, the Bankruptcy Court will not allow any of your creditors to bring suit against you or attach your property. This includes a prohibition against garnishment of wages.
- Are debts for taxes covered under a Chapter 13?
Yes. Debts for unpaid federal income taxes are usually covered under a Chapter 13 Plan. So long as a lien has not been filed, the Bankruptcy Court will stop the accrual of interest and penalty on your delinquent balance. The court also has the power to set aside a tax lien filed by local taxing authorities. A Chapter 13provides significant opportunities to discharge tax obligations, in some cases, even if the debtor has not filed returns.
- Must I obtain my creditors' approval?
No. Only the Bankruptcy Court must approve your plan.
- Must I obtain the approval of my Secured Creditors?
No. If you propose to pay a secured creditor the value of his security plus interest on that value, the Secured Creditor must accept the plan. Secured creditors must be paid in a manner equal to the value of the collateral.
- Will the Court approve my Chapter 13 Plan?
The Bankruptcy Court will approve your plan if 1) it is proposed in Good Faith, 2) the required fees are paid, 3) each of your secured creditors is paid the lesser of what you owe or the value of the collateral, or the collateral has been surrendered to satisfy the claim, and 4) you make the required payments to the Chapter 13 Trustee timely.
- How will a Chapter 13 case affect my Credit Rating?
In most cases, clients who seek this type of assistance have already damaged their credit. The effect a Chapter 13 will have on your credit will depend on your present history and your situation. A Chapter 13 may stay on your credit history for a maximum of 10 years.
- What if I change my mind after my Chapter 13 Plan is in effect and no longer desire to pay my debts.
You have the absolute right to either dismiss your Chapter 13 or to convert the petition to a straight bankruptcy. This decision may be made at any time. You will be required to pay the additional attorney's fees earned in performing either of these tasks.
- Is a Chapter 13 Plan better than a privately operated debt consolidation service?
Yes, in many cases, for the following reasons:
- The court will force your unsecured creditors to accept the payment plan. This is even the case, when you propose to pay your unsecured creditors a small percentage of their actual claims. A private service does not have this power.
- The court has the power to prevent your creditors from bringing suit against you and from trying to attach your property. A private service does not have this power.
- Under a Chapter 13 Plan, the court will discharge you from all unpaid debts upon the completion of your plan. A private service does not have this power.
- Will I have to appear in Court if I file a Chapter 13?
Generally speaking, NO you will not be required to appear in court. You will be required to attend the "Trustee's Resource Management Course" on a Tuesday approximately one (1) month after your petition is filed. At the time you are attending the "Resource Management Course" your attorney will be attending your "First Meeting of Creditors". The "Resource Management Course" will pause for a period of time for all attendees to attend their "Meeting of Creditors". The meeting is informal and our office will prepare you for this occasion. The "First Meeting of Creditors" usually does not last longer than 10 or 15 minutes. If problems arise during the course of your plan, you may have to make other court appearances. The hearings, however, are mostly informal and you will always have the opportunity to explain your views or problems to the judge.
- How can I tell whether a Chapter 13 will work for me?
Subtract the amount of money you and your family need each month to pay for your current living expenses from your monthly income. Do not include the expenses for payments which will be made through the Chapter 13 Plan. The remainder is the amount that you will be able to pay toward your debts each month. Simply multiply the amount to be paid toward your debts each month by the maximum number of months over which you could sustain a Chapter 13 Plan (do not exceed 60 months). This figure will represent the total amount you will be able to pay toward your debts under you Chapter 13 Plan. Next calculate the total amount you owe on all debts paid in your Chapter 13 Plan and add ten (10) percent. If this figure (the total amount of debts plus 10%) is less than the total amount to be paid on your debts under the Chapter 13 Plan, then a Chapter 13 Plan should work for you.
- Who can file under Chapter 13?
Any resident of the Untied States, other than a stockbroker or a commodity broker, who has regular income and who has unsecured debts of less than $269,250 and secured debts of less than $807,750. His or her spouse may also file jointly.
- Should both husband and wife file under Chapter 13?
If both spouses are eligible to file and if both are liable for most of the debts, then both should file. If both spouses are eligible to file, but only one spouse is liable for the debts, then only the liable spouse may want to file. In most cases both spouses should file jointly.
- Can a husband and wife file under Chapter 13?
Yes. Unless one of the spouses is a stockbroker or a commodity broker, a husband and wife can file a joint petition under Chapter 13 if both reside in, do business in, or own property in the United States.
- How often can I file under Chapter 13?
As often as you need, so long as you are filing in "good faith".
- Can I file under Chapter 13 if I have already filed straight bankruptcy and the case is still open?
Yes, it will only be necessary to file a Chapter 13 Petition in the pending bankruptcy case and the case will automatically be converted to a Chapter 13.
- Where is my Chapter 13 case filed?
In the United States District Court in the district where you reside or where you work. The Bankruptcy Court is a part of the United States Bankruptcy Court. Ebert Law Offices limits its practice to the Fort Worth Division of the Northern District of Texas.
- What fees are charged in a Chapter 13 case other than the attorney fees and how are they paid?
The court will charge a filing fee of $185.00 when your case is filed. Additionally the Trustee will charge a Notice Fee of $2.37 per creditor plus an administrative fee of approximately 10% of the amount you pay under the plan. For example: if the total amount of debts being paid through the plan is $10,000.00, the fees will total $1,185.00 (i.e., $185.00 filing fee, $1,000.00 administrative fee) plus $2.37 for each of your creditors. Generally these fees and your attorney's fees and costs will be more than offset by the savings obtained in your Chapter 13 Plan.
- What if some of the creditors do not accept my Chapter 13 Plan?
As long as the court approves your plan, your unsecured creditors will be forced to accept the plan. Most Secured Creditors can also be forced to accept the plan, provided they are paid the value of their collateral plus interest. You are allowed great flexibility in dealing with secured creditors. Usually a plan can be devised which is acceptable to your secured creditors.
- How do I handle my Secured Creditors?
You have three options for dealing with your Secured Creditors in your Chapter 13 Plan:
- The secured creditor can accept your proposed plan; or
- You can surrender the collateral to the creditor which will cancel your obligation; or
- You can pay the secured creditor the value of his collateral, plus interest through the Plan. The amount of any claim in excess of the collateral's value is bifurcated into a separate unsecured claim.
It is important to realize, while a secured creditor cannot be forced to accept a plan, most Secured Creditors do not have enough collateral to completely cover the debt owed them. Usually secured creditors are willing to accept a plan, which promises to pay them completely. Also, as long as the plan is in effect, the court has the power to prevent an unreasonable creditor from repossessing his collateral. This threat encourages secured creditors to be receptive to reasonable plans. Finally, the court can modify the rights (this usually means extending the time for repayment) of any secured creditor, except those having a first lien mortgage on your home.
- What if the court will not approve my Chapter 13 Plan?
The court will usually approve a Chapter 13unless it appears you will not be able to make the payments prescribed in plan or unless the plan is not being proposed in good faith. If the plan is proposed in good faith, the court will usually let you modify the plan to one the court will approve.
- When do the installment payments begin and how often must they be made?
The first installment payment must be paid to the Trustee approximately one (1) month after your plan is filed. Then you must make additional monthly payments as required by your plan. These payments must be made timely. Making the required payments when due will evidence you are filing the plan in good faith and you have the ability to make the proposed payments. The Court also offers a program that allows you the option of having your employer withhold payments from your salary, directing them to the Trustee.
- What about creditors who fail to file proof of claims?
If a creditor fails to file a claim with the Court within 90 days of the First Meeting of Creditors, you may object to its filing a claim. Upon the successful completion of the plan, this creditor's claim, if unsecured, will be discharged. You may file a claim on behalf of a creditor if you wish to do so.
- What about debts that have been co-signed by another person?
If the debt is a consumer debt, the automatic stay entered when your case was filed will prevent your creditors from seeking to collect their claims from persons who are liable with you. The automatic stay continues until the case is completed, dismissed, converted to a straight bankruptcy, or removed by Court Order. However, if you do not satisfy the debt, the creditor can seek payment of the balance from the co-signer after the plan has been completed.
- What about foreclosures and repossessions during the plan?
The court has the power to prevent secured creditors, even those secured by real estate, from foreclosing upon or repossessing your property for as long as the plan is in effect provided you have equity in the property and the property is worth at least as much as you owe. This does not mean the court will always prevent a creditor from foreclosing. But, if you are making an honest effort to satisfy a secured creditor and if your payments to that creditor are reasonably current, the creditor will not be permitted to reclaim its collateral. However, if you do not keep your payments current to the trustee (and direct to the creditor if required) the court may lift the stay and allow the creditor to foreclose or repossess its collateral. The creditor must make application to the court in order to lift the stay however.
- What if I need to purchase something on credit during the plan?
This is reasonably common, especially if your plan lasts for a number of years. If it becomes necessary to purchase a different car, a larger house, or some other item that is needed for the well-being of you or your family, the procedure is to petition the court for permission before making the purchase. If the judge feels the purchase is reasonably necessary, he will allow you to incur the new credit obligation. This is especially true if the new debt does not impair your ability to make the installment payments prescribed in the plan.
- What happens if I amtemporarily unable to make my installment payments during the plan?
If you are temporarily out of work, or are injured or otherwise unable to make the installment payments for a limited period during the life of your plan, the court may suspend the payments until you are able to return to work and resume the payments. If it appears that your inability to make the payments is permanent or will continue for a lengthy period, the judge will either dismiss the case or allow you to convert to a straight bankruptcy.
- What will happen if my Chapter 13 fails?
If you are unable to complete your Chapter 13, your case will either be dismissed or converted to straight bankruptcy. The choice is usually yours.
- Do I have to completely pay off all of my debts under a Chapter 13 Plan?
No. You must provide for payments of the following debts: 1) secured debts to the lesser of the value of the collateral or what you owe, 2) all priority debts, and 3) the payment to unsecured creditors of an amount equal to the value of your non-exempt assets. You will also be required to pay your disposable income through the Chapter 13 plan for a minimum of 36 months.
- If I incur additional debts after the case has been filed, can I include them in my plan?
Only two kinds of debts incurred after the Chapter 13 case is filed may be included in your Chapter 13 Plan. These are debts for taxes that become payable after you filed the case and consumer debts necessary for you to carry out the plan. To be included, consumer debts usually must be approved by the Trustee in advance.
- What is the role of your attorney in a Chapter 13 Plan?
Your attorney will normally perform the following functions in a Chapter 13 case:
- Assist you in determining whether a Chapter 13 Plan is possible. If a Chapter 13 is possible, then determining the type of plan which best suits your situation.
- Assist you in preparing a budget.
- Assist you in devising a plan acceptable to the court and to secured creditors.
- Preparation of the proper pleading and forms to filed with the court.
- Contact creditors to solicit their acceptance of your plan.
- File the Chapter 13 Petition and all other papers with the court.
- Attend the "First Meeting of Creditors" and any subsequent court hearings.
- Assist you in gaining confirmation of the Chapter 13 Plan.
- Attend the Confirmation Hearing.
- Assist you in overcoming any obstacles (legal or non-legal) that arise during the course of the plan.
In most cases legal services provided after confirmation accrue additional fees. The fees paid to your attorney must be set and approved by the Bankruptcy Court. Most of the fees paid to your attorney will be paid in installments through the plan. Attorney's fees vary depending on the simplicity/complexity of each case. However, a minimum fee will generally be quoted to you at the completion of your initial conference. The fee quoted will include only routine services required in a typical Chapter 13. If objections are filed or extra services provided, then you will incur additional attorney's fees.
- Will I be entitled to receive my Income Tax refund?
Yes, but the Internal Revenue Service will forward your refund check to the Chapter 13 Trustee. If you are current on your payments to the Trustee, he will forward the check to you. If you are not current, the Trustee will retain as much of the refund as is necessary to bring your payments current. However, if you owe the Internal Revenue Service, the refund check will not be issued, but will be applied to the payment of your tax debt.