What is chapter 13? chapter 13 is a bankruptcy proceeding also called wage earner’s plan, allows a debtor to develop a plan to repay all or part of their debts under court’s supervision within 3 to 5 years.
Chapter 13
It allows a debtor with regular income to reorganize their finances to repay all or part of their debts in case of any financial ruin. It is actually a bankruptcy not for those who lack income but for those people who are facing difficulty in dealing with creditors’ (entity whose money is owing) demands for immediate payment.
Under Chapter 13 of U.S Bankruptcy code, people have 3 to 5 years to resolve their debts while applying all their disposable income to debt reduction.
Debt meaning–Chapter 13 debt
Debt is usually money, borrowed by one party from another. It is used by many corporations, company owners and individuals to make huge purchases that they financially could not afford because of their normal income / circumstances. A debt is given to the borrower money under the condition that it is to be paid back at a later date, usually with interest. So, they may file chapter 13 or chapter 7 depending on their situation.
- Usually corporations, company owners and individuals use debt as a method of making large purchases or for some huge business investment that they could not afford under normal financial situations.
- Money is given under the condition that it must be paid back at a later date, usually with some interest.
- Debt can be classified as secured, unsecured, revolving, or mortgaged.
Chapter 13 Bankruptcy
A person who files or declares chapter 13 bankruptcy, pays their available money to their creditors over the period of three- to five-year repayment plan of their finances and filing and completing a Chapter 13 bankruptcy case is far more difficult than Chapter 7 bankruptcy.
The actual purpose of your Chapter 13 case is the repayment plan that a person put forward to their creditors and the court. You might use either the official plan form for repayment plan or person’s court’s local form, depending on where you file for bankruptcy and your creditors and the bankruptcy trustee will have a right to object to your repayment plan. If you can make changes to everyone’s satisfaction, the court will definitely approve your reorganizational plan at the confirmation hearing. You will not have to wait until plan confirmation at hearing but the person / organization starts paying monthly payment, however, payments will begin the month after you file.
How a Chapter 13 Case Ends
After completing your repayment plan, you must show the court that you are current on your child support and alimony obligations and that you have completed the budget counseling course mentioned above. If you meet all requirements, the remaining balance on qualifying dischargeable debt gets wiped out. You should be debt free except for a mortgage or student loan if you have one.
Chapter 13 near me
You can visit some official websites where you enter your area and zip code to find best lawyers (for chapter 7 or chapter 13 bankruptcy proceedings) near your area or consult any bankruptcy attorney near you.
Mortgage lender for chapter 13
Bankruptcy mortgage lenders are those people who understand the common hurdles that come along with getting a mortgage after bankruptcy. Some bankruptcy mortgage providers can even offer a home loan as soon as 1 day after your chapter 13 bankruptcy discharge date. A few of the best companies that deal with bankruptcies. These bankruptcy mortgage lenders offer options for both new home purchases, and refinance programs.
- Prime Equity Mortgage
- ACC Mortgage
- First National Bank of America
- Green Box Loans
- Citadel Servicing
- Angel Oak Mortgage Solutions.
What happens when my chapter 13 paid off?
Not all debts are treated equally in bankruptcy. Every person’s debt falls into a particular category that tells you whether the debt must be paid or whether it can be discharged. When you complete your Chapter 13 repayment plan, you’ll receive a discharge order that will wipe out the remaining balance of qualifying debt. In fact, a Chapter 13 bankruptcy discharge is even broader than a Chapter 7 discharge because it wipes out certain debts that are not dischargeable in Chapter 7 bankruptcy maybe.
Process of filing chapter 13 bankruptcy:
A chapter 13 bankruptcy case start by filing a petition with the bankruptcy court along with providing the area where the person or debtor has a residence or a domicile. Unless the court orders otherwise, the debtor must also file with the court: By law, Fed. R. Bankr. P. 1007(b).
A statement of financial dealings.
A schedule of current income and expenditures
A schedule of executory contracts and unexpired leases; and
Schedules of assets and liabilities
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The person/debtor filing for chapter 13 must provide the chapter 13 case trustee with a copy of the tax return for the most recent paid tax year as well as tax returns filed during the bankruptcy case (including tax returns for prior years that had not been filed when the case began). The debtor filing for chapter 13 bankruptcy must also file a certificate of credit counseling that you’ll file with your bankruptcy paperwork and a copy of any debt repayment plan developed through that counseling. The person also provides if he has any evidence of payment from employers, received 60 days before filing. He must provide a statement of monthly net income and any future increase in income or expenditure after filing for chapter 13 bankruptcy; and a record of any interest the debtor has in federal or state qualified education or tuition accounts. (By U.S. states code 11 U.S.C. § 521).
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Once you have set that you qualify for filing for chapter 13 bankruptcy, you must enter all of your financial information on official bankruptcy forms and draft your repayment plan and then file your forms, certificate, and plan with the bankruptcy court to get the proceedings underway. You’ll also have to pay the bankruptcy filing fee.
- Within a few weeks after you file for bankruptcy, you’ll meet with the bankruptcy trustee appointed to guide your case at the 341 meeting (meeting between creditors and debtors that take place while proceedings of chapter 13 or chapter 7 bankruptcy) of creditors. The trustee examines your proposed Chapter 13 repayment plan and makes sure if it complies with all legal requirements, and supporting documentation. After this meeting, you will attend a confirmation hearing along with your attorney at which the bankruptcy judge will decide whether to approve your repayment plan or not. Also, a creditor can object to your case by filing an opposition with the court. After reviewing written objections, the judge will decide whether to confirm the plan or not.
- Then the person must start paying his/her debt according to your repayment plan within 30 days. If a person misses payments, the court will dismiss their case. For some moment, if debtor’s income drops, person might be able to ask the court to reduce their payment
- After completing the repayment plan, the debtor will get a bankruptcy discharge. As long as the person paid the amount promised by them in the plan. Congratulations! Now you or your organization is free from bankruptcy.
What does chapter 13 trustee do?
When a person files for chapter 13 bankruptcy, within a few weeks after filing, the debtor will meet with the bankruptcy trustee appointed to guide the debtor’s case. Many Chapter 13 trustee districts play an active role in the cases they administer. This is especially true in small or rural judicial cases, or in districts with numerous Chapter 13 bankruptcy cases. For example, a trustee might:
- ensure that you filed your complete tax returns for the four years before filing and receive the payments accordingly under the plan
- The trustee distribute plan payments to your creditors accordingly required by law
- The trustee will examine your proposed Chapter 13 bankruptcy repayment plan and make sure it completes all legal requirements.
- He also examine the monthly income and expenditure reports required in a Chapter 13 case, and
- Trustee will give you financial advice, such as helping you create a realistic budget (the trustee cannot, however, give you legal advice)
- Your trustee help you modify your plan, if necessary
- Trustee may also give you a temporary cancellation or take other steps to help you get back on track if you miss a payment or two, or
Note: Chapter 13 trustee keep 7%–10% of the payments they pay out to creditors. You can watch this for bankruptcy basics:
Despite the trustee’s interest in your finances, your financial relationship with the trustee regarding bankruptcy should have its limits.
As long as you make the payments called for under your repayment plan and you make all regular payments on your secured debts then You will be in control over money and property you obtain after filing
However, if your income or property increases during the repayment plan (just like for a moment, you receive a good promotion or you win some prize), the trustee can guide you to change your plan to pay your creditors a greater percentage of what you owe them rather than the lesser percentage originally called for in your plan. The trustee might also be involved if your income decreases and you find you have to convert from Chapter 13 to Chapter 7 bankruptcy.
Chapter 13 vs Chapter 7
Declaring bankruptcy is a major decision that can have long-term negative effects on your finances and credit. Chapter 7 and Chapter 13 bankruptcy are two very different legal options with different consequences on your bankruptcy case, but definitely both can help debtors who are in difficult situations due to their debt.
Chapter 7 bankruptcy, also known as a liquidation, is a legal option that can help you clear some or all of your debt. But it will also mean that having to leave all your assets, like property or cash, to do so. Chapter 13 bankruptcy is also a legal option that can help you get some debt discharged, but this allows you to keep your property and repay your debt by completing a three- to five-year repayment plan.
But before filing either type of bankruptcy, consider the type of debt you owe. Neither option lets you discharge the following:
- Child support
- Alimony
- Certain taxes
If your debts are different from those options and you have checked all your other options to repay them , such as asking for help or credit counseling — Chapter 7 or Chapter 13 bankruptcy may give you the help you need. Each has some advantages and disadvantages, so it’s important to carefully consider which one of the bankruptcy proceedings, if either, is right for you.
Quick facts
Difference between Chapter 7 and chapter 13 bankruptcy| Chapter 7 | Chapter 13 | |
|---|---|---|
| Bankruptcy type | Liquidation | Reorganization |
| What happens to assets? | The assets of a business are liquidated / converted to cash to pay its creditors, with secured debts taking precedence over unsecured. | Debtors may keep all property but must pay the creditor's amount in a 3 to 5 years plan. |
| Fee/ cost | $338 admin/ fee (trustee, attorney fees, etc.) Total cost: $1,500-$3,000 | $313 admin. fee (trustee, attorney fees, etc.) Total cost: $3,000-$5,000+ |
| Eligibility | Disposable income should be low enough for Chapter 7’s means test. | Unsecured debt less than $419,275 and secured debt less than 1,257,850. |
| How long does it take? | Almost, 4 to 6months. | Repayment plan normally take3 to 5 years. |
| Who can file? | Individuals, business entities. | Individuals only. |
| How long does it stay on a credit report? | Up to 10 years after discharge. | Up to 7 years after discharge. |
Should you file for Chapter 7?
Chapter 7 is an option to consider if you have very little to no income. In fact, you’ll have to pass a means test to prove that you cannot afford to pay your debt in order to file for bankruptcy.
The things to consider if you’re deciding whether Chapter 7 bankruptcy is right for you are:
- It could reduce your monthly debt-repayment load.
- It can provide relief from debt collectors.
- You may be able to clear your debts faster with Chapter 7 than with Chapter 13 as Chapter 7 generally takes about 90 to 100 days from start to finish, in addition to the time it takes to complete a credit counseling course prior to filing whereas Chapter 13 bankruptcy usually takes three to five years to complete
- You will lose some assets because one of the main consequences of filing Chapter 7 is the possible loss of your assets/ money depending on the laws in your state.
- Your credit could take a hit. That doesn’t mean you’ll never be able to open a credit card or take out a mortgage again in life, but it does mean you might have to pay a lot more in interest rates and fees when borrowing anything.
Should I file Chapter 13 – What is chapter 13?
Chapter 13 is a bankruptcy option to look at if you own property that you want to keep or if you have sufficient income, you may be required to file for Chapter 13:
- It can help you repay your debt.
- It can take three to five years to discharge from your debts.
- If you can’t stick to the repayment plan, you could lose your Chapter 13 status and maybe even assets.
- If you’re unable to make your payments under the plan, your bankruptcy case could be dismissed or converted to Chapter 7 bankruptcy case.
- In short, It is a complicated legal process that may require you to do a fair amount of research before deciding your proceedings forward, and if it’s even the best option for you whether to go for chapter 7 or chapter 13.
- Typically, the entire process is completed within six months. Chapter 7 bankruptcy forces you to liquidate a great many assets to repay creditors. But the process can be concluded very quickly, and any wages and property you acquire after the bankruptcy filing, except inheritances, aren’t subject to distribution to your creditors.
- Seeking Chapter 13 protection allows you to keep all your property. It simply extends the amount of time you have to repay what you owe after the bankruptcy court issues its ruling. It is possible to file a Chapter 13 bankruptcy after a Chapter 7 is completed, allowing you to seek a reduction in whatever debts remain from a Chapter 7 discharge. Chapter 13 also protects your loan cosigners against the collection efforts if the bankruptcy settlement obligates you to repay the debt by yourself.
- There are disadvantages as well. Legal fees can be higher in Chapter 13 cases than Chapter 7 cases and your obligation to repay can last for years. In Chapter 7, the Chapter 7 discharge ends most debt obligations.
Are you Eligible to File Bankruptcy in the United States?
According to 11 U.S.C. 109 (Section 109 of the United States Bankruptcy Code) which allows any person to file bankruptcy in the USA if they reside, have a domicile, place of business OR property in the USA.If you no longer live or have a residence in the U.S. then it is mandatory that you have some property or any assets within the United States borders to be eligible for filing bankruptcy.
What constitutes sufficient “property”? That depends on the court, but for many, even a simple bank account will suffice, sometimes only depositing funds into an attorney’s trust account can meet the requirement. In most cases almost any asset here in the USA will make a person eligible to be a debtor in bankruptcy. (Which chapter you’re eligible for is another matter altogether, and that can get very complicated using foreign currency and expenses).
Also, although it isn’t a requirement, for practical purposes you also must have a mailing address in the USA where you regularly receive mails.
Chapter 13 filings – Statistics
Chapter 13 bankruptcy is where debtors propose a repayment plan over a three- to five-year period. It is only available to those with sufficient disposable income to service their debts and allows for the debtor to avoid the sale of their assets or property to repay their huge debt.
According to Statista report published by Statista Research Department Chapter 13 bankruptcy filings in the United States, Jan 20, 2021 which stated that during the 12 months leading up to March 31, 2020, Georgia had the highest number of Chapter 13 bankruptcy filings of any U.S. state with 24,514 cases being filed in only 12 months – which is twice the number of Chapter 13 bankruptcies filed in the most populous state, California.
Among the Chapter 13 bankruptcies filed in Georgia, 65 were business related, and 24,449 were non-business related bankruptcies filed.
Things You can do online When Filing Bankruptcy
A person is filing pro se (anyone who appears before the Court without an attorney is considered pro se.) or is using a bankruptcy attorney for chapter 13, there are many things that a person can do online.
Also due to the coronavirus pandemic, most United States bankruptcy courts have done a number of changes to their proceedings. You can find detailed information about how courts are handling pro se filings of cases in the time of covid or social distancing here.
- If you are filing chapter 13 bankruptcy, you can keep track online of how your repayment plan is going.
- can take the online credit counseling and debtor education classes.
- can get the official bankruptcy forms or any local forms required for bankruptcy court proceedings.
- You can also get your credit report, bank statements, paycheck stubs, online and any other documents related to financial situation.
- You can get notices about your bankruptcy case via email.
Chapter 13 – what you can’t do online
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Filing your bankruptcy forms except for those who live in the districts that allow electronic self-representation, anyone filing their own bankruptcy case has to submit all their documentation of proceedings in person or by mail which they can’t do online.
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Electronic Self Representation in Selected Courts, In 2014, the Central district of California Bankruptcy Court in L.A. became the first ever bankruptcy court to use Electronic self- representation (eSR) software. eSR is a free online tool that allows debtors to prepare and submit their bankruptcy forms online. It is widely now used to help individuals in filing for bankruptcy without an attorney as a pro se.
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Paying Court the Filing Fees, despite of an online bankruptcy filing, there is an option for non-bankruptcy lawyers, you must have to pay the bankruptcy fee by mail or in person and if you are able to pay online, make sure you use a debit card, not a credit card. You also can’t deal with your trustee online sometimes because every bankruptcy determines how they wish to receive the documents from the bankruptcy filers whose cases they oversee.
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You also can’t do the meeting of creditors online as the 341 meeting of creditors normally takes place in person but due to the COVID-19 pandemic, the U.S. Trustee has allowed trustees to conduct these meetings either by phone or via video conference (online). Trustees verify the filers’ social security number either via video or by asking for documentation in preparation for the meeting. While it’s not clear that online 341 meetings will also remain an option post-pandemic or not. Attend Court Hearings is also a thing sometime you can’t do online
Frequently Asked Questions (FAQs)
1. Does Chapter 13 lower your debt?
Chapter 13 bankruptcy allows you to restructure your debts through a repayment plan during the period of 3 to 5 years. When you complete your plan, you will receive a Chapter 13 discharge that eliminates most of your remaining debts.
2. Is it worth it to file Chapter 13?
Filing for a Chapter 13 bankruptcy case is worth it or not, and whether it makes the most sense in your bankruptcy case situation, will depend on the assets or property you have and how much income you receive or if you are facing lack of money only for some time. If you do not qualify to file a Chapter 7 case, or if you have non-exempt assets you want to protect, a Chapter 13 could be the best solution for you.
3. How late can you be on a Chapter 13 payment?
Chapter 13 repayment plans continue from 3 to 5 years depending on your income and expenditures.
4. Which is better: Chapter 7 or Chapter 13?
For many debtors, Chapter 7 bankruptcy is a better option than Chapter 13 bankruptcy because for some instance, Chapter 7 is quicker, many filers can keep all or most of their property, and filers don’t pay creditors through a three- to five-year Chapter 13 repayment plan (which you mostly choose when you face lack of money and have to pay the creditor immediately).
5. What if filers don’t pay through a 3 to 5 year repayment plan?
In chapter 13 debtors choose a payment plan to pay between 3 to 5 years but if he cant pay or afford his case will move to chapter 7 where he may sell some assets or property.
6. Why is Chapter 13 a bad idea?
Sometimes Chapter 13 may worsen your finances and once you’re out of bankruptcy protection, you have more debt than ever. Because you now have paid the costs of bankruptcy - attorney fees and filing fees, a seven year flag on your credit report — without receiving the main benefit of bankruptcy.
7. What happens to your bank account when you file Chapter 7?
In most Chapter 7 bankruptcy cases, nothing happens to the debtor’s bank account. As long as the money in debtor’s account is protected by an exemption, your bankruptcy proceedings won’t affect it but all your assets or property may affects.
8. What is the difference between chapter 7, 11 and 13?
Chapter 11 and Chapter 13 bankruptcies allow for the discharging of debts but have different costs, eligibility, and time to completion. Chapter 13 allows us to make a repayment plan to pay debt between 3 to 5 years.
Chapter 11 can be done by almost any individual or business, with no specific debt-level limits and no required income. However, Chapter 11 is the most complex form of bankruptcy and generally the most expensive. Thus, it’s most often used by businesses rather than individuals.
9. Does chapter 13 trustee monitor income?
Yes, monitor the monthly income and expense reports required in a Chapter 13 case.
10. What is Chapter 13 discharge time frame?
The timeline in the Chapter 13 bankruptcy process is that you will receive the discharge order about 1-3 months after completing your Chapter 13 bankruptcy plan payments. The length of every Chapter 13 plan varies from case to case. In most cases, the plan length is between 3-5 years.
11. Is Chapter 13 federal or state?
The federal bankruptcy court provides a form for drafting a plan, or you can obtain one from a lower court also in your area. The bankruptcy court must approve your plan for you to enter Chapter 13.
12. Can you move out of state while in Chapter 13?
The short answer is yes, you can move while you are in chapter 13.
13. Does the Chapter 13 trustee check your bank account?
Generally no, but the trustee may conduct reviews of your finances, including your business and personal bank accounts, to ensure you have enough cash to continue making payments as normal.
14. How much cash can you keep in Chapter 13?
In chapter 13 proceedings, you can protect up to $10,000 in personal property. However, it cannot be in a bank account.
Conclusion
Chapter 13 is a kind of bankruptcy proceeding also called wage earner’s plan or repayment or reorganizational plan as it allows a debtor to develop a plan to repay all or part of their debts under court’s supervision within 3 to 5 years. It is actually a proceeding not for those who lack income but for those people who are facing difficulty in dealing with creditors’ demands for immediate payment. In this type of bankruptcy debtors don’t need to sell their assets immediately because they have enough time to repay the money.
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