Chapter 13 questions

[adviceplease]

We may be borderline between filing 7 and 13. If I end up with going chapt 13 I am confused about how it works. So is it basically the trustee settles with the credit card companies for a lower balance and then you make a monthly payment for 60 months?

My mom says that they tried that in the past and the trustee takes your paycheck and gives you a certain amount to live on after the bills are paid and if there is extra they take it and pay it towards the bills instead of letting you have it to live on (like overtime or gift money)?

Also once the 60 months is up and you are discharged is that the end of it? It confuses me how my $36,000 in debt will be paid off in 60 months, does the intrest stop on the CC's?

Last question, do they include your lawyer fees into the plan or do you still have to pay that yourself?

Thanks!!

[optimistic1]

It works like this,

Chapter 13 bankruptcy, sometimes called the wage earner's plan, or reorganization bankruptcy, is quite different from Chapter 7 bankruptcy (which wipes out most of your debts). In a Chapter 13 bankruptcy, you use your income to pay some or all of what you owe to your creditors over time -- anywhere from three to five years, depending on the size of your debts and income.

Chapter 13 bankruptcy isn't for everyone. Because Chapter 13 requires you to use your income to repay some or all of your debt, you'll have to prove to the court that you can afford to meet all of your payment obligations. If your income is irregular or too low, the court might not allow you to file for Chapter 13.

If your total debt burden is too high, you are also ineligible. Your secured debts cannot exceed $922,975, and your unsecured debts cannot be more than $307,675. A "secured debt" is one that gives a creditor the right to take a specific item of property (such as your house or car) if you don't pay the debt. An "unsecured debt" (such as a credit card or medical bill) doesn't give the creditor this right.

The Chapter 13 Process

Before you can file for bankruptcy, you must receive credit counseling from an agency approved by the United States Trustee's office. Credit Card Management Services is one of the few agencies that is approved by United States Trustee to offer both pre-filing bankruptcy counseling as well as pre-discharge debtor education course. Call us at 800-920-2262 to talk with one of our counselors.
Once you've completed your counseling, the credit counseling agency will give you a certificate showing that you met the requirement. To begin your bankruptcy case, you must file this certificate with the bankruptcy court, along with a packet of forms listing what you own, earn, owe, and spend. You'll also need to submit your federal tax return for the previous year and proof that you filed federal and state tax returns for the previous four years. In addition, you must file a Chapter 13 repayment plan showing how you will pay off your debt. And you'll have to pay the filing fee, which is currently $189.


The Chapter 13 Repayment Plan

This form is the most important paper in your entire Chapter 13 bankruptcy case. It describes in detail how (and how much) you will repay each of your debts. There is no official form for the plan, but many courts have designed their own forms.

Making Payments on the Repayment Plan

You must begin making payments under your Chapter 13 repayment plan within 30 days after you file it with the bankruptcy court. Usually, you make payments directly to the bankruptcy trustee (the person appointed by the court to oversee your case). Once your repayment plan is confirmed, the trustee will distribute the money to your creditors.

If you have a regular job with regular income, the bankruptcy court may order that your monthly payments be automatically deducted from your wages and sent directly to the bankruptcy court.

How Much You Must Pay?

Your Chapter 13 plan must pay certain debts in full. These debts, which include child support and alimony, wages you owe to employees, and certain tax obligations, are called "priority debts," because they're considered sufficiently important to jump to the head of the bankruptcy repayment line.

In addition, your plan must include your regular payments on secured debts, such as a car loan or mortgage, as well as repayment of any arrearages on the debts (the amount by which you've fallen behind in your payments).

The plan must show that any disposable income you have left after making these required payments will go towards repaying your unsecured debts, such as credit card or medical bills. You don't have to repay these debts in full (or at all, in some cases). You just have to show that you are putting any remaining income towards their repayment.

How Long Your Plan Will Last?

The length of your repayment plan depends on how much you earn and how much you owe. If your average monthly income over the six months prior to the date you filed for bankruptcy is higher than the median income for your state, you'll have to propose a five-year plan. If your income is lower than the median, you may propose a three-year plan. (To get the median income figures for your state, go to the United States Trustee's website, www.usdoj.gov/ust/ , and click "Means Testing Information.")

No matter how much you earn, your plan will end if you repay all of your debts in full, even if you have not yet reached the three- or five-year mark.

If You Can't Make Plan Payments

If for some reason you cannot finish a Chapter 13 repayment plan -- for example, you lose your job six months into the plan and can't keep up the payments -- the bankruptcy trustee may modify your plan. The trustee may:


give you a grace period, if the problem looks temporary
reduce your total monthly payments, or
extend the repayment period.


If it's clear that there's no way you'll be able to complete the plan because of circumstances beyond your control, the court might let you discharge your debts on the basis of hardship. Examples of hardship would be a sudden plant closing in a one-factory town or a debilitating illness.

If the bankruptcy court won't let you modify your plan or give you a hardship discharge, you can:


convert to a Chapter 7 bankruptcy, unless you received a Chapter 7 bankruptcy discharge within the last eight years or a Chapter 13 bankruptcy discharge within the last six years, or
ask the bankruptcy court to dismiss your Chapter 13 bankruptcy case. You would still owe your debts. However, any payments you made during your plan would be deducted from those debts. On the flip side, your creditors will be able to add on interest they did not charge while your Chapter 13 case was pending.


How a Chapter 13 Case Ends?

Once you complete your repayment plan, all remaining debts that are eligible for discharge will be wiped out. Before you can receive a discharge, you must show the court that you are current on your child support and/or alimony obligations, and that you have completed a budget counseling course with an agency approved by the United States Trustee. (This requirement is separate from the mandatory credit counseling you must undergo before filing for bankruptcy.)

[justbroke]

If your total debt burden is too high, you are also ineligible. Your secured debts cannot exceed $922,975, and your unsecured debts cannot be more than $307,675. A "secured debt" is one that gives a creditor the right to take a specific item of property (such as your house or car) if you don't pay the debt. An "unsecured debt" (such as a credit card or medical bill) doesn't give the creditor this right.

These debt limits changed in 2007. It is now $336,900 in unsecured debt and $1,010,650 for secured debts. Only debts that are noncontingent, liquidated, and undisputed, are counted in these limits.

[adviceplease]

I have about $1330,000 secured and $36,000 unsecured (not including vehicles). Thanks for the info.

So you pay a set amount to the trustee, they do not take your whole check? And there is a discharge of some of the debt, you only pay part?

[optimistic1]

Justbroke, thank you for the revision.

So you pay a set amount to the trustee, they do not take your whole check? And there is a discharge of some of the debt, you only pay part?

Yes, you pay a set amount either based off the means test form, or whatever is left after you pay all of your monthly expenses. They do not take your whole check.

Keep in mind, that depending on your debts, this payment may need to adjust up to pay for certain things.

Yes, depending on your plan some unsecured debts will be discharged, but that depends on several factors. Some people pay all of the unsecured claims, some pay 0 to unsecured claims.

[lrprn]

Ch 13 plans end when you make the agreed number of payments or when your unsecured creditors are paid 100% of their claims back - whichever comes first. It's far more common to make the required number of payments to get your Ch 13 discharge.

Once you've made your required number of payments, then your unsecured creditors get whatever they've been disbursed by your trustee up to that point. Anything else left over on the original debt is wiped out. You also do *not* owe taxes on whatever amount of original debt was wiped out.

[Skipper]

Ch 13 plans end when you make the agreed number of payments or when your unsecured creditors are paid 100% of their claims back - whichever comes first. It's far more common to make the required number of payments to get your Ch 13 discharge.

Once you've made your required number of payments, then your unsecured creditors get whatever they've been disbursed by your trustee up to that point. Anything else left over on the original debt is wiped out. You also do *not* owe taxes on whatever amount of original debt was wiped out.

Is there anything to keep an individual from filing Chapter 13 in order to strip a HELOC, even though the disposable income is a negative number?

This could allow the debtor to ask for a re-payment time period of zero, because due to the negative disposable income calculation there is no extra monies to make a payment.

I believe this has been upheld by the 9th Circuit court.

Thoughts?

Skipper