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Chapter 13 Bankruptcy: Frequently Asked Questions

The following responses are intended as general information and should not be taken as legal advice. For information and recommendations specific to your unique circumstances, get in touch with our attorney at Consumer Law Pro today. We can begin with a free consultation.

Would you like to learn more about Chapter 13 bankruptcy from an experienced professional in Aurora? Call Consumer Law Pro at (303) 622-3833 or contact us online today. We look forward to addressing your concerns and answering all your questions.

  • Q:What is Chapter 13 bankruptcy and how does it work?

    A:In a Chapter 13 reorganization, the debtor pays back a portion or, in rare cases, all of their debts. Chapter 13 plan payments can be as little as $100/month or much higher (e.g. several thousand) depending on income, household size, and whether there are debts which must be paid back in full, such as mortgage arrears and priority tax debts. You will make payments directly to the Chapter 13 trustee, who will then distribute the payments to your creditors according to the repayment schedule confirmed by the court. Your attorney will submit a plan to the court for approval. If there are objections by creditors or the trustee, the attorney must resolve those objections before the court will approve the plan. In many cases, your attorney will submit an original plan, followed by one or two amended plans before confirmation. The duration of the plan is 3-5 years and depends on your income. If you are below the state’s median income, you will most likely have a 3-year plan.

  • Q:What is the main difference between Chapter 13 and 7 bankruptcy?

    A:A Chapter 7 is a straight discharge without a repayment plan. A debtor does not make payments in a Chapter 7 case, but nonexempt assets (if any) will be liquidated. In a Chapter 13, on the other hand, the debtor makes payments to the bankruptcy trustee before receiving a discharge. There is no liquidation of assets in a Chapter 13.

  • Q:When is a Chapter 13 bankruptcy case preferable to a Chapter 7 bankruptcy case?

    A:Some debtors may not qualify for a Chapter 7 because of a previous bankruptcy or because their income is too high. Additionally, Chapter 13 bankruptcy may be preferable to someone who has property which would be liquidated in a Chapter 7 bankruptcy (e.g. rental property with equity). Finally, a person may have debts which would not be discharged in a Chapter 7 bankruptcy but can be reorganized and potentially reduced through Chapter 13.

  • Q:Does the bankruptcy means test apply to a Chapter 13?

    A:Yes. The means test calculation (Form 22B) determines two things in a Chapter 13: 1) The length of the payment plan (i.e. 3 or 5 years) and 2) The minimum distribution to unsecured creditors such as credit cards, medical, pay day loans, etc.

  • Q:How is Chapter 13 different from credit consolidation?

    A:There are two important differences. First, your creditors are forced into a Chapter 13 bankruptcy once you file and cannot opt out. Otherwise, some creditors may not agree to take part in a consolidation program. The second critical difference is that a Chapter 13 bankruptcy is a ‘best efforts’ repayment plan. Most debtors pay just a fraction of their debt back in a Chapter 13, and the remaining balances are discharged. A consolidation requires you to pay back all of your debts at a reduced interest rate negotiated by your agent.

  • Q:When will I receive a Chapter 13 discharge?

    A:You must complete all of your plan payments to receive a discharge in Chapter 13. Otherwise, the trustee will file a motion to dismiss the case. If you experience financial hardship during your repayment plan, your attorney can request a reduced monthly payment, or you may be able to switch to Chapter 7 instead.

  • Q:What does the Chapter 13 trustee do?

    A:The Chapter 13 trustee is a person appointed by the United States Trustee to administer Chapter 13 bankruptcies. The trustee represents the best interests of your unsecured creditors and may object to a proposed plan if the trustee believes the debtor is not making fair payments to creditors. Once your plan is approved, you will make payments to the trustee, who then mails checks to the creditors based on the terms of the plan. Some debts are paid before others, such as mortgage arrears and tax debts. The unsecured creditors receive payments based on a pro rata basis.

  • Q:How much will I have to pay each month?

    A:Many factors will affect your payment amount. If you have fallen behind on mortgage payments and want to keep the home, for example, you must pay back all of the missed payments (arrears) during the plan. Therefore, your payment must be large enough to provide for the arrears in full. Certain tax debts must also be paid back in full. In most cases, the court will not require you to pay back your unsecured debts in full. Ultimately, your income and household size will determine how much your unsecured creditors must receive.

  • Q:What are the eligibility requirements for a Chapter 13?

    A:Only individuals, sole proprietors, and other self-employed people can file Chapter 13 bankruptcy. You will not be eligible for Chapter 13 if: You are a commission-based wage earner and you don’t have a regular income; you are filing as a business that is a separate entity (e.g. LLC, partnership, corporation, etc.); you are a stockbroker or commodity broker; your unsecured debt exceeds $394,725; your secured debt exceeds $1,184,200; you intentionally dismissed a bankruptcy case within the last 180 days. If your level of debt is too high, you may benefit from Chapter 11 instead, which is available to both individuals and businesses.

  • Q:What responsibilities does my attorney have in a Chapter 13?

    A:The following services are common to most Chapter 13 cases. Some cases will not require everything in this list, but they are generally considered essential to competent and effective representation. 1) Meet with you to review and analyze your financial situation. 2) Advise you on whether bankruptcy is appropriate and necessary and, if so, whether to file a Chapter 7 or Chapter 13 case. 3) Advise you of your statutory obligations once the bankruptcy is filed, both pre and post-confirmation. 4) Evaluate the timing of the filing. 5) Evaluate conflict-of-interest issues. 6) Explain the nature and amount of fees to be charged for the Basic Services, providing you with a copy of this list If necessary, e-file all documents on your behalf. 7) Analyze eligibility for discharge. 8) Prepare and file all required documents, including (but not limited to) schedules, statement of affairs, Form B22 C (Statement of Current Monthly Income), and other information required by section 521(a) of the Code. 9) Assist you in formulating a budget and Chapter 13 plan. 10) Respond to creditor inquires. 11) Supply requested information to the Chapter 13 Trustee. 12) Advise you regarding the automatic stay. 13) Take appropriate action with respect to the automatic stay. 14) Represent you at the § 341 meeting of creditors. 15) Review claims filed by the final hearing on confirmation and account for them in the plan. 16) Represent you in negotiations with the Chapter 13 Trustee. 17) Prepare and file any necessary amendments to schedules, statements, and proposed plans If you own real estate or are involved in lawsuits, obtain a lien search and, if applicable, prepare and file motions for avoidance of liens. 18) Represent you at any Rule 2004 examination. 19) File or object to proofs of claim, as necessary If appropriate, prepare and file responses to motions and appear at any hearings. 20) Represent you in the plan confirmation process and, if necessary, attend the hearing on objections to confirmation. 21) Prepare all proposed orders and give all notices as required. 22) Comply with T.L.B.R. 1017 and 3015, 11 U.S.C. §§ 521 and 1308. 23) By utilizing the Presumptively Reasonable Fee (“PRF”) procedure, the attorney agrees to perform these services as part of the Chapter 13 case. 24) If providing these services results in a fee greater than the PRF, the attorney must apply for fees in accordance with the Bankruptcy Code and Rules.

  • Q:Do judgments go away when I file for Chapter 13 bankruptcy?

    A:It is possible to remove a judgment lien in a Chapter 13 case. Your lawyer must file a motion under 11 USC 522(f) and notice of the motion on the creditor who holds the lien. Whether the lien will be removed depends on whether it impairs the homestead exemption and by how much. Your attorney will use a mathematical formula that takes into account the fair market value of the home, senior encumbrances, the dollar amount of the exemption/s, the balance of the lien, and when the lien was filed. If your exemption is only partially impaired, the lien will be removed to the extent that it intrudes on the exemption. This is a complex area of the Bankruptcy Code, and your attorney should handle the entire process for you. Removing liens will result in increased attorney costs, but, in most cases, it is well worth it.

  • Q:How will filing bankruptcy affect my credit?

    A:Many creditors look at a Chapter 13 bankruptcy more favorably than a Chapter 7. However, that alone is not reason to choose a Chapter 13 over a 7. Both types of bankruptcy filings could have a negative impact on your credit score, but the impact is temporary. It is possible to begin rebuilding credit while in a Chapter 13. In fact, the Chapter 13 plan payments are reported to the credit bureaus, so it is important to pay on time. By the end of the Chapter 13 plan (3-5 years), the impact of the bankruptcy on your credit score will have subsided. However, the bankruptcy will still show on your credit report for a total of 7 years and will be one of many factors future creditors will consider.

  • Q:Will my friends, family, or employer find out I've filed for bankruptcy?

    A:Most likely, no. They would need to search your public records on PACER, but few people would have reason to do this. In general, trustees very rarely contact the filer’s employer.

  • Q:Will potential employers discriminate against me for filing bankruptcy?

    A:It is against the law for an employer and government agency to make an eligibility or employment decision based on the fact that you filed bankruptcy.

  • Q:Under Chapter 13, which property can I keep?

    A:Unlike Chapter 7, Chapter 13 does not involve liquidation. However, you must satisfy the Chapter 7 reconciliation requirement, which means your creditors must receive as much in the Chapter 13 repayment plan as they would from a Chapter 7 liquidation.

  • Q:Is there a court meeting?

    A:After the filing of a Chapter 13 case, the court sets dates for the creditor’s meeting (also known as the trustee meeting) and confirmation hearing. You are required to appear for the creditor’s meeting, which is scheduled approximately 40 days after filing the case. You will answer a set of questions from the trustee and any creditors who appear. Your attorney will appear for the confirmation hearing. If the parties are unable to agree on certain issues, the court may hold a trial, and a judge will make a decision. You might also be required to appear for certain contested confirmation hearings. Your attorney will prepare you well in advance of any such hearing.

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