Filing Bankruptcy Chapter 13
An Arizona chapter 13 bankruptcy enables individuals with regular income to develop a plan to repay all or part of your debts. Under this chapter, you propose a repayment plan to make installments to creditors over three to five years. If your current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” If your current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. During this time the law forbids creditors from starting or continuing collection efforts.
Advantages of Chapter 13
Chapter 13 offers individuals a number of advantages over liquidation under chapter 7 Arizona bankruptcy. Perhaps most significantly, chapter 13 offers individuals an opportunity to save their homes from foreclosure. By filing under this chapter, your can stop foreclosure proceedings and cure delinquent mortgage payments over time. While catching up on past due balances as part of the chapter 13 payment plan, you must still make all mortgage payments that come due during the chapter 13 plan on time. Another advantage of chapter 13 is that it allows you to reschedule secured debts (other than a mortgage for their primary residence) and extend them over the life of the chapter 13 plan. Doing this may lower the payments. Chapter 13 also has a special provision that protects third parties who are liable with you on “consumer debts.” This provision may protect co-signers. Finally, chapter 13 acts like a consolidation loan under which you make the plan payments to a chapter 13 trustee who then distributes payments to creditors. You will have no direct contact with creditors while under chapter 13 protection.
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Chapter 13 Eligibility
Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as your unsecured debts are less than $336,900 and secured debts are less than $1,010,650. These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation or partnership may not be a chapter 13 debtor.
You cannot file under chapter 13 or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to your willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. In addition, no individual may be a debtor under chapter 13 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. Links to approved credit counseling agency are found on the “Client” page of our website. There are limited exceptions to this requirement.
How Chapter 13 Works
A chapter 13 case begins by filing a petition with the Arizona bankruptcy court. Unless the court orders otherwise, you must also file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a schedule of executory contracts and unexpired leases; and (4) a statement of financial affairs. You must also file a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts. The debtor must provide the chapter 13 case trustee with a copy of the tax return or transcripts for the most recent tax year as ll as tax returns filed during the case (including tax returns for prior years that had not been filed when the case began). A husband and wife may file a joint petition or individual petitions.
In order for us to prepare your chapter 13 case you must provide us with the following information:
- A list of all creditors and the amounts and nature of their claims;
- The source, amount, and frequency of the debtor’s income;
- A list of all of your property;
- A detailed list of the your monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.
Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse is required so that the court, the trustee and creditors can evaluate the household’s financial position.
Filing the petition under chapter 13 “automatically stays” (stops) most collection actions against the debtor or the debtor’s property. The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even make telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided.
Chapter 13 also contains a special automatic stay provision that protects co-debtors. Unless the bankruptcy court authorizes otherwise, a creditor may not seek to collect a “consumer debt” from any individual who is liable along with the debtor. Consumer debts are those you incurred primarily for a personal, family, or household purpose.
Perhaps the most powerful tool in a chapter 13 case, is the ability to save your home from foreclosure. The automatic stay stops the foreclosure proceeding as soon you file the chapter 13 petition. You may then bring the past-due payments current over a reasonable period of time. If you are behind on your mortgage payments, and want to save your home, you should contact us right away. Your chapter 13 case must be filed before the foreclosure process is complete according to Arizona state law. Filing the chapter 13 case alone is not enough to save the home. You must also make the regular mortgage payments that come due after the chapter 13 filing.
Between 20 and 50 days after file your chapter 13 petition, the chapter 13 trustee will hold a meeting of creditors. During this meeting, the trustee places you under oath, and both the trustee and creditors may ask questions. The Judge is not present at this meeting. You are required to attend the meeting and answer questions regarding your financial affairs and the proposed terms of the plan. If a husband and wife file a joint petition, they both must attend the creditors’ meeting and answer questions regardless of who is the wage earner. In most cases the Arizona Bankruptcy court 341 meeting lasts for about than 10 minutes, and your Phoenix Bankruptcy attorney will be there with you.
In a chapter 13 case, to participate in distributions from the bankruptcy estate, unsecured creditors must file their claims with the court within 90 days after the first date set for the meeting of creditors. A governmental unit, hover, has 180 days from the date the case is filed file a proof of claim.
After the meeting of creditors, you, the chapter 13 trustee, and those creditors who wish to attend will come to court for a hearing on the debtor’s chapter 13 repayment plan.
The Chapter 13 Plan and Confirmation Hearing
Unless the court grants an extension, you must file a repayment plan with the petition or within 15 days after the petition is filed. A plan must be submitted for court approval and must provide for payments of fixed amounts to the trustee on a regular basis, typically biweekly or monthly. The trustee then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims.
There are three types of claims: priority, secured, and unsecured. Priority claims are those granted special status by the bankruptcy law, such as most taxes and the costs of bankruptcy proceeding. (3) Secured claims are those for which the creditor has the right take back certain property (i.e., the collateral) if the debtor does not pay the underlying debt. In contrast to secured claims, unsecured claims are generally those for which the creditor has no special rights to collect against particular property you own.
The plan must pay priority claims in full unless a particular priority creditor agrees to different treatment of the claim or, in the case of a domestic support obligation, unless you contributes all “disposable income” – discussed below – to a five-year plan.
If you want to keep the collateral securing a particular claim, the plan must provide that the holder of the secured claim receive at least the value of the collateral. If the obligation underlying the secured claim was used the buy the collateral and the debt was incurred within certain time frames before the bankruptcy filing, the plan must provide for full payment of the debt, not just the value of the collateral (which may be less due to depreciation). Payments to certain secured creditors (i.e., the home mortgage lender), may be made over the original loan repayment schedule (which may be longer than the plan) so long as any arrearage is made up during the plan. Treatment of these payments is complex and depends on your individual circumstances. We will discuss these items in greater detail during your initial consultation, if necessary.
The plan need not pay unsecured claims in full as long it provides that the debtor will pay all projected “disposable income” over an “applicable commitment period,” and as long as unsecured creditors receive at least as much under the plan as they would receive if the debtor’s assets re liquidated under chapter 7. In chapter 13, “disposable income” is income (other than child support payments received by the debtor) less amounts reasonably necessary for the maintenance or support of the debtor or dependents and less charitable contributions up to 15% of the debtor’s gross income. The “applicable commitment period” depends on the debtor’s current monthly income. The applicable commitment period must be three years if current monthly income is less than the state median for a family of the same size – and five years if the current monthly income is greater than a family of the same size. The plan may be less than the applicable commitment period (three or five years) only if unsecured debt is paid in full over a shorter period.
Within 30 days after filing the bankruptcy case, even if the plan has not yet been approved by the court, you must start making plan payments to the trustee. If any secured loan payments or lease payments come due before your plan is confirmed (typically home and automobile payments), you must make adequate protection payments directly to the secured lender or lessor – deducting the amount paid from the amount that would otherwise be paid to the trustee.
No later than 45 days after the meeting of creditors, the bankruptcy judge must hold a confirmation hearing and decide whether the plan is feasible and meets the standards for confirmation set forth in the Bankruptcy Code. Creditors will receive 25 days’ notice of the hearing and may object to confirmation. While a variety of objections may be made, the most frequent ones are that payments offered under the plan are less than creditors would receive if your assets re liquidated or that the plan does not commit all of the debtor’s projected disposable income for the three or five year applicable commitment period.
If the court confirms the plan, the chapter 13 trustee will distribute funds received under the plan “as soon as is practicable.” If the court declines to confirm the plan, a modified plan can be filed. It is also possible to convert the case to a liquidation case under chapter 7.
Occasionally, a change in circumstances may impact your ability to make plan payments. For example, a creditor may object or threaten to object to a plan, or you may inadvertently have failed to list all creditors. In such instances, the plan may be modified either before or after confirmation. Modification after confirmation is not limited to an initiative by the debtor, but may be at the request of the trustee or an unsecured creditor.
Making The Plan Work
The provisions of a confirmed plan bind the debtor and each creditor. Once the court confirms the plan, it is up to you to make the plan succeed. You must make regular payments to the trustee either directly or through payroll deduction, which will require adjustment to living on a fixed budget for the duration of the plan.
You can make plan payments through payroll deductions. This practice increases the likelihood that payments will be made on time and that you will complete the plan. If you fail to make the payments due under the confirmed plan, the court may dismiss the case or convert it to a liquidation case under chapter 7 of the Bankruptcy Code. The court may also dismiss or convert the debtor’s case if the debtor fails to pay any post-filing domestic support obligations (i.e., child support, alimony), or fails to make required tax filings during the case.
The Chapter 13 Discharge
The bankruptcy law regarding the scope of the chapter 13 discharge is complex and has recently undergone major changes. At the law firms initial consultation the Phoenix bankruptcy lawyer will review the scope of the chapter 13 discharge as it applies to your situation.
A chapter 13 debtor is entitled to a discharge upon completion of all payments under the chapter 13 plan so long as the debtor: (1) certifies (if applicable) that all domestic support obligations that came due prior to making such certification have been paid; (2) has not received a discharge in a prior case filed within a certain time frame (two years for prior chapter 13 cases and four years for prior chapter 7, 11 and 12 cases); and (3) has completed an approved course in financial management. The court will not enter the discharge, hover, until it determines, after notice and a hearing, that there is no reason to believe there is any pending proceeding that might give rise to a limitation on the debtor’s homestead exemption.
The discharge releases you from all debts provided for by the plan or disallowed (under section 502), with limited exceptions. Creditors provided for in full or in part under the chapter 13 plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations.
As a general rule, the discharge releases the debtor from all debts provided for by the plan or disallowed, with the exception of certain debts. Debts not discharged in chapter 13 include certain long-term obligations (such as a home mortgage), debts for alimony or child support, certain taxes, debts for most government funded or guaranteed educational loans, student loans or benefit overpayments, debts arising from death or personal injury caused by driving while intoxicated or under the influence of drugs, and debts for restitution or a criminal fine included in a sentence on the debtor’s conviction of a crime. To the extent that they are not fully paid under the chapter 13 plan, the debtor will still be responsible for these debts after the bankruptcy case has concluded. Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for restitution or damages awarded in a civil case for willful or malicious actions by the debtor that cause personal injury or death to a person will be discharged unless a creditor timely files and prevails in an action to have such debts declared nondischargeable.
The discharge in a chapter 13 case is somewhat broader than in a chapter 7 case. Debts dischargeable in a chapter 13, but not in chapter 7, include debts for willful and malicious injury to property (as opposed to a person), debts incurred to pay nondischargeable tax obligations, and debts arising from property settlements in divorce or separation proceedings.
The Chapter 13 Hardship Discharge
After confirmation of a plan, circumstances may arise that prevent you from completing the plan. In such situations, you may ask the court to grant a “hardship discharge.” Generally, such a discharge is available only if: (1) your failure to complete plan payments is due to circumstances beyond your control and through no fault of your own; (2) creditors have received at least as much as they would have received in a chapter 7 liquidation case; and (3) modification of the plan is not possible. Injury or illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge. The hardship discharge is more limited than the discharge described above and does not apply to any debts that are nondischargeable in a chapter 7 case.