Chapter 13 Bankruptcy FAQs — Individual Debt Adjustment

1.What is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy involves a bankruptcy that allows reorganization and restructure. It allows a debtor to propose and carry out a repayment plan that will allow them to pay their debts within the next 3-5 years.

2.Who can file?

Only individuals, corporations or partnerships may not use Chapter 13. However, an individual may include business debt in their petition. The debtor must have an unsecured debt of less than $336,900 and a secured debt of less than 1,010,650. Debtors’ income may not be less than a certain minimum, which ensure that the debts can be paid off.

3.What are the advantages?

• Saves Real Properties – Can temporarily stop foreclosures;
• Saves your assets and home (Homestead protection);
• Reschedules secured debts;
• Protects third parties (co – signers);
• Usually allows you to strip off your second mortgage, if your first mortgage is more than what your home is worth;
• Grants “Automatic Stay” – creditors may not initiate or continue any lawsuits, make wage garnishments, or telephone calls demanding payments.

4.What are the disadvantages?

The disadvantage of filing for personal bankruptcy is that, under the Federal Credit Reporting Act, a record of this stays on the individual’s credit report for up to ten years. During the pendency of a Chapter 13 case the debtor is not permitted to obtain additional credit without the permission of the bankruptcy court.

5.My spouse is declaring bankruptcy, should he file alone or should we file together?

Married couples who are jointly liable can and should file a single petition for Bankruptcy for a number of reasons. Among others, the petition for both debtors can be filed for a single fee and attorneys will usually charge the same amount for handling the single petition. However, if only one spouse is indebted to the point of seeking Bankruptcy, they should probably file individually on their own so as not to affect their spouse’s credit. Also remember whether married couples should file a joint petition or a single one depends on various factors: type of property, the amount of community debt involved, and how the property is held (e.g., community joint tenancy, or an estate-by-the entirety).

6.How many months do I have to pay off my debts?

Chapter 13 provides for full or partial repayment of your debts over a three- to five- year time period, this depends upon your plan which should be based on your income over the life of the plan.

7.What happens if I stop paying or can’t pay the Trustee?

It depends, if the problem is temporary, usually not more than three months, then contact the Trustee and ask to work out an alternate payment plan. If you are acting in good faith, the trustee will normally work with you. However, if you cannot work out a plan, or simply fail to make the payments then, the Trustee will have your case either converted to a Chapter 7 or completely dismissed in which case you will lose all bankruptcy protection. The important point here is to communicate with the Trustee.

8.Can I pay the trustee extra money if I’m able?

It’s not recommended. If your income changes permanently you must inform the court so your payment plan can be adjusted. But, if you come into a few extra dollars, save it for emergencies.

9.What should I do if I cannot make my Chapter 13 repayment?

If the Debtor cannot make a Chapter 13 payment on time pursuant to the terms of the confirmed plan, the Debtor should contact the Chapter 13 Trustee by phone and by letter advising the Trustee of the problem and whether it is temporary or permanent. If it is temporary, the Debtor should advise the Trustee of the time and manner in which the Debtor will make up the payments. So long as the Trustee agrees, the payments can be made up over time. If the problem is permanent and the Debtor is no longer able to make payments under the plan, the Trustee will request that the case be dismissed or converted to another Chapter, or the Debtor may seek to modify his or her plan. The determination of whether to modify the plan or dismiss or convert a case requires legal analysis. The Debtor should seek counsel from a qualified bankruptcy attorney before attempting to make a decision how to proceed in their case.

10.How much does it cost to file Chapter 13?

The mandated court filing fees for filing Bankruptcy Chapter 13 are $274.00 USD. Plus, there is a the credit counseling fee which is usually in the $50.00 range. Attorneys fees vary depending on the complexity of the case (number and amount of real estate and unsecured debt involved) and the number of individuals involved (single or married), most attorneys charge a base of $3,500.00 and $6,500.00. However, because a typical Chapter 13 plan will last for between 2 and 5 years, there may be additional fees depending on the positions and actions of the creditors, and the individual’s changing circumstances over 2 to 5 years.