How Chapter 13 Works

If I qualify for a Chapter 7 bankruptcy, why might I want to file a Chapter 13 instead?

There are many reasons why debtors may elect to file a chapter 13 when they qualify for a Chapter 7 bankruptcy. The main reasons are below:

• They will lose personal property within their Chapter 7 bankruptcy that they do not want to lose.
• They owe a priority unsecured creditor, which will not be discharged in within their Chapter 7 bankruptcy. These include the IRS, the Franchise Tax Board, EDD, unemployment benefits and payroll taxes.
• They wish to save a home from foreclosure.
• They wish to remove a second mortgage lien holder on a home they wish to keep. To "strip" a second mortgage or line of credit, your home must be worth less than what you owe on your first mortgage.

What is a Chapter 13 and how long do I have to be in a chapter 13 bankruptcy?

Chapter 13 is a reorganization of debt. The debtor pays back creditors through a monthly "plan" payment plan handled by the bankruptcy trustee. Generally, the duration of the plan ranges from three to five years. Debtors are not required (in most cases) to pay their creditors in full, but rather what they can afford to pay after paying their necessary monthly living expenses.

What is the 341 meeting of creditors?

IThe "meeting of creditors" is conducted by the Chapter 13 trustee and does not involve the bankruptcy judges. This meeting will be held within 50 days after the voluntary petition is filed, and it is a mandatory court appearance for each debtor. Each debtor is questioned under oath by the trustee about his or her financial affairs. Creditors may attend and ask questions of a debtor. Questions are usually about the location and disposition of the debtor's assets and may involve other matters about the administration of the case

Chapter 13 plan payments begin the month after the voluntary Chapter 13 petition is filed. Plan payments are made directly to the Chapter 13 trustee's office, and are due by the 25th of each month. Payments may be paid by wage deduction (wage order), cashier's check or money order. Cash and/or personal checks are not acceptable forms for plan of payments.

Chapter 13 plan calculations are based upon the amount of debt that must be paid, in full through the plan, during the term of the plan. The initial calculations are based upon the "estimated" amounts owed to each individual creditor. However, the plan pays only timely filed and allowed proof of claims. All creditors (except a governmental unit) have 90 days from the initial 341 meeting of creditors to file a proof of claim, and governmental units have 180 days from the filing of the voluntary Chapter 13 petition to file a proof of claim. After a review of the claims filed, the plan payment may need to be adjusted, either up or down, so the plan may complete within the specified term, or as long as the term doesn't exceed 60 months, the plan term may be adjusted to compensate for the claims filed.

Plan payments must be made each month. If there is a change of circumstances which prevents a payment from being made, the debtor needs to contact his or her attorney's office immediately. The case will be reviewed and a possible modification of the plan may be necessary. If the debtor fails to contact his or her attorney's office immediately to remedy the delinquency, the case may be dismissed and the creditors may proceed with legal action.

While in a Chapter 13 bankruptcy, a debtor is prohibited from transferring, encumbering, selling, or otherwise disposing of any personal or real property with a value of $1,000.00 or more without first obtaining court approval. A debtor may not incur new debt exceeding $1,000.00 without first obtaining court authorization. This includes a loan modification on real property. The debtor should contact his or her attorney's office immediately to be advised of the appropriate procedure.

Prior to doing anything, you should consult with a qualified bankruptcy attorney.