By Ryan C. Wood
Filing bankruptcy is no easy task and it is even more complicated if you chose to file a Chapter 13 bankruptcy case. There are a number of common chapter 13 bankruptcy questions we receive time and time again. The following are questions that arise in most Chapter 13 bankruptcy cases. Your jurisdiction, trustee and local rules are different then the rules for the Northern District of California. While the issues that arises in Chapter 13 cases are the same or similar; how the issues are addressed are most likely different from jurisdiction to jurisdiction and trustee to trustee.
1. How Much Do I Have to Pay to my Creditors if I File Chapter 13 Bankruptcy?
There is no simple answer to this question and it depends upon your debts, income, expenses and assets. The biggest misconception about filing a Chapter 13 case is that the bankruptcy filer has to pay back all of their debts. This is simply not true. Chapter 13 requires that you pay back what you can afford. In 2005 the Chapter 13 Statement of Monthly Disposable Income was created to determine if you have money to pay back general unsecured debts like credit cards, medical bills or other debts with no collateral securing the repayment. This form is very complicated and you should retain a Chapter 13 bankruptcy attorney in your jurisdiction to make sure it is completed properly. Generally speaking, secured debts like a house mortgage and car loan are paid first and deducted from your monthly disposable income. Next priority debts like taxes and child support are paid next and deducted from your monthly disposable income. After these expenses are deducted and standardized deductions for living expenses are deducted and you have any income left over, then your general unsecured creditors may receive a payment through the Chapter 13 plan. The typical Chapter 13 Plan reorganizes some secured debt, pays back priority debts and then there is little leftover for general unsecured creditors. After the Chapter 13 plan of reorganization is completed you will receive a discharge of the debts you did not have to pay back in the Chapter 13 plan. In theory you can receive anywhere from a 99.99% discharge to 0.99% discharge.
Relax and find out answers to common Chapter 13 bankruptcy questions.
2. What is Confirming a Chapter 13 Plan?
Another common question about Chapter 13 bankruptcy cases is confirmation. Confirmation is a term that most clients do not understand. You need to think of confirmation as approval. The bankruptcy court must approve of your Chapter 13 plan of reorganization and meet the requirements set forth in 11 U.S.S. §1325 of the bankruptcy code. There are a number of requirements. The Chapter 13 trustee assigned to administer your case will evaluate the plan you filed as to whether it meets the requirements of Section 1325. If so, the trustee will recommend confirmation/approval of the plan. If not, the trustee will file an objection to confirmation/approval of the plan with the court and hearing will be scheduled. The quickest and easiest way to have your plan or reorganization approved is to have the trustee recommend confirmation/approval. If the trustee does object you can have the bankruptcy judge overrule the trustee’s objection to approval of the plan. In most jurisdictions the Chapter 13 trustees is given deference by the court. It is an uphill battle normally to get a Chapter 13 plan approved if the trustee is objecting.
3. What are Proofs of Claims and Why do I Care?
In a Chapter 13 bankruptcy case the only way a creditor can be paid through a Chapter 13 plan is if they file a proof of claim evidencing the amount owed and how it was calculated. You should care because if a claim is wrong you may have to pay more to a creditor than you are actually legally obligated to. It is important to make sure proofs of claims filed are accurate and that certain creditors with secured debts or priority debts actually files claims to be paid. If you have mortgage arrears and are paying them back in the Chapter 13 plan your mortgage company has to file a proof of claim to be paid. What if the mortgage company does not file a claim? Then the Chapter 13 trustee cannot pay the mortgage arrears and that part of the Chapter 13 plan payment will go to some unintended creditor that did file a proof of claim. At the end of the Chapter 13 plan the mortgage company will still be owed money and there will be a mess to deal with. It is very important that certain parties file claims depending upon the debts being reorganized or discharged.
4. What If I Cannot Make the Chapter 13 Plan Payments Anymore?
Once the Chapter 13 plan is confirmed/approved you will continue to make the plan payment for however months your plan is, usually 3 or 5 years. Life happens though so what happens two years into the Chapter 13 plan and your income is reduced. You need to contact your Chapter 13 bankruptcy attorney to file a motion to modify the confirmed Chapter 13 plan pursuant to section 1329 of the Bankruptcy Code. It is possible to change the monthly plan payment based upon a change in circumstances like having your income reduced.
5. What If I No Longer Want to be in the Chapter 13 Case?
Unlike Chapter 7 bankruptcy you have a right to voluntarily dismiss your Chapter 13 case if you so choose. It is almost an absolute right given that you voluntarily chose to file a Chapter 13 case and pay back a portion of your debts. Once the case is filed you are more or less back in the same position you were before the case was filed at all.
