THINKING ABOUT FILING A CHAPTER 13 “CONSUMER REORGANIZATION” BANKRUPTCY?

Advantages of filing a Chapter 13 Bankruptcy:

1. You have immediate protection against creditor’s collection efforts and wage garnishment as a result of the “Automatic Stay.”
2. You have protection against foreclosure on your home or car by your lender as long as you meet the terms of your Chapter 13 plan.  Unlike in Chapter 7, your “automatic stay” protection can last up to 5 years.
3. If you can afford the payment plan and can still make your mortgage and/or car payment(s), you can keep all your property, even if it is not protected by exemption(s) and has lien(s) attached by secure creditor(s).  (Thus you don’t need to worry about real property that has equity and/or autos that have not been paid off.)
4. While nonsecured debts are usually not completely wiped out as in a Chapter 7 discharge, they can be significantly reduced under a Chapter 13 payment plan.
5. More debts are considered to be dischargeable in Chapter 13 than in Chapter 7, including debt determined to be incurred by fraud and credit card charges for luxury items of $1,150 or more made within 60 days of filing).
6. You have more time to pay debts, such as taxes or back child support, that can’t be discharged by bankruptcy.
7. You can file a Chapter 13 at any time, and unlike a Chapter 7, you can voluntarily dismiss it at any time.
8. If the Chapter 13 plan provides for full payment, any co-signers are immune from the creditor’s efforts.  You are also able to treat debts where there is a co-debtor involved on a different basis than debts incurred on your own.

Disadvantages of filing a Chapter 13 “Reorganization” Bankruptcy:

1. You must have less than $383,175.00 of unsecured (e.g., credit card) debt and less than $1,149,525.00 of secured (e.g., houses and autos) debt, and must show regular income.
2. Your ability to spend during the 3 or 5 year Chapter 13 plan period is strictly regulated; you create a payment plan where you use all of your excess post bankruptcy income to pay off your creditors.
3. Legal fees are higher than a Chapter 7 because a Chapter 13 filing is more complex.
4. While your debts are discharged within a few months in Chapter 7, your debts are not discharged until the end of the Chapter 13 Plan (3 or 5 years after filing).
5. You are involved in the bankruptcy court process for the full term of the 3-5 year plan.
6. Business entities, stockbrokers and commodity brokers cannot file a Chapter 13 bankruptcy; it is only for individuals and married couples.

2-4 Years Before Filing a Chapter 13 Bankruptcy

• If you received a previous discharge under Chapter 7, 11 or 12 within the previous four years before filing, then you are ineligible for a discharge under Chapter 13.
• If the prior case was a Chapter 13, you must wait two years before you are eligible for another Chapter 13 discharge.

180 Days Before Filing

• You must complete a credit counseling course – which explains financial management, alternatives to bankruptcy, and how to do a budget analysis – and receive a “CCC” (Credit Counseling Certificate) from an approved nonprofit budget and credit counseling agency any time in the six months prior to filing your new case. 11 U.S.C. § 109(h) (Credit Counseling Requirement).
• If you had a prior bankruptcy case that was dismissed because you failed to obey court orders or you voluntarily requested a dismissal, then in some circumstances you may not file a new bankruptcy case for another 180 days.

90 Days Before Filing

• You must be a resident of the state in which you intend to file your bankruptcy case for at least 90 days before filing.  If you have not lived in the state in which you intend to file your case for at least 90 days, you may only file your case in the state where you have resided, or which has been the location of your principal assets, for a majority of the prior 180 days. 28 USC § 1408 (Residency Requirement).

• Your case is formally opened when you file your bankruptcy petition with the appropriate bankruptcy court.  The court will send a notice of your case to all of the creditors listed in your petition.  (One reason why you want to include all your creditors.)
• In most cases – see above for exceptions – the court will immediately enter an “Automatic Stay” order prohibiting your creditors from taking or continuing any collection or legal action against you.  This means no more harassing letters or phone calls for as long as the automatic stay remains in effect, and the bankruptcy automatic stay is the only thing guaranteed to stop a foreclosure sale or eviction.  The automatic stay in a Chapter 7 case can last from as little as one month to as long as the duration of the case (usually between 3 to 6 months), depending on what your creditors do or don’t do. 11 U.S.C. § 362
• Next, the bankruptcy court will assign a bankruptcy trustee to oversee your case.  The trustee is appointed by the court to make sure you are eligible for a chapter 13 bankruptcy, receive monthly “plan payments and administer your case.”  The trustee will first review your petition and your Chapter 13 Plan, and schedule the “meeting of [your] creditors” (341a Hearing).

15 Days After Filing

• You have a deadline of 15 days after you file your petition to file the chapter 13 plan and certain financial “schedules” with the court-documents stating your assets, liabilities, expenses, income, and a statement of your affairs.  In most case, however, your attorney will file all the schedules with your petition.
• Within approximately 15 days after you file your case, the court will mail the Notice of Commencement of Case to you and to all of the creditors listed in your petition.  This notice will inform you of the date set by the court for the Meeting of Creditors, and the deadlines for your creditors to object to your case and file their claims against you.

Approximately 30 Days After Your Chapter 13 Repayment Plan is Filed

• You must make your first payment under your repayment plan within 30 days after the date that your chapter 13 plan was filed, otherwise your case can be dismissed.

Approximately 6 Weeks (45 days) After Your Case is Filed

• The court will hold the Meeting of Your Creditors (341a Hearing) about six weeks after your bankruptcy case is filed.
• The court-appointed trustee will preside over this meeting.  At the meeting, which you are required to attend, you will be asked to testify under oath as to the accuracy of the statements in your petition.   However, most creditors generally do not appear at the meeting, and you will not be before a judge. The meeting is very informal, and in most cases will last no more than 10 minutes.  If you do not attend the 341a Hearing, your case will be dismissed.

30 Days After the Meeting of Your Creditors

• The bankruptcy trustee and your creditors have 30 days after the conclusion of the Meeting of Creditors to make objections.

45 Days After the Meeting of Your Creditors

• The court will have a Confirmation Hearing during which the bankruptcy trustee will recommend to the judge whether or not your repayment plan should be approved by the court.  Your creditors have the right to object to confirmation of your case, but your attorney will likely have resolved any objections to confirmation before this date.  If not, additional confirmation hearings may take place before your Chapter 13 Plan is approved by the court.  Once the plan is approved, it becomes a binding contract between your creditors and you.  As long as you remain current on your mortgage or car payments, and pay the chapter 13 trustee each month, your secured creditors cannot and will not foreclose on you.

90 Days After the Meeting of Your Creditors

• All of your creditors (except for government entities) must file their proofs of claim (these are documents your creditors submit to the court specifying how much you owe them) within 90 days after the first date set for your creditor meeting if they wish to share in the payments from your case.

180 Days After Your Chapter 13 BK is Filed

• Government entities that have claims against you (such as the IRS) have 180 days after the filing of your case to submit their proofs of claim.

3 or 5 years After Filing your Chapter 13 Bankruptcy

• If you made all your payments on time and handled any other problems during the confirmed chapter 13 plan, then you will receive a Chapter 13 discharge of debts, and the arrears on your secured property will have been paid off.  Your foreclosure worries are gone.