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National Association of Consumer Bankruptcy AttorneysLaw Offices of Stan E. Riddle, Attorneys & Lawyers - Bankruptcy & Taxes, Oakland, CA
Chapter 13 Bankruptcy

Chapter 13 - Background

Chapter 13 bankruptcy is also called a wage earner's plan because it enables individuals with regular income to utilize a plan enabling them to repay all or a portion of their debts. It is under this chapter that debtors propose a plan to repay creditors over a period of three or five years. If the debtor's current monthly income is below the state median, the plan may be recommended for three years though the court could approve a five year plan if it is preferred. During the life of your chapter 13 plan you are under the protection of bankruptcy and the law forbids creditors from starting or continuing any collection efforts.

Chapter 13 - Eligibility

Even if self-employed or operating an unincorporated business, an individual will be eligible for chapter 13 relief so long as their unsecured debts are less than $360,475 while their secured debts are less than $1,081,400. A corporation or partnership does not qualify for protection under chapter 13 of the bankruptcy code.

There are a few reasons that an individual would not qualify to file for bankruptcy protection under any chapter. If during the preceding 180 days a debtor has had either of the following occur, a prior bankruptcy case was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court, or was the case was voluntarily dismissed by the debtor once creditors sought relief from the bankruptcy court to recover property for which they hold liens.

Chapter 13 - How It Works

A chapter 13 case is opened in the bankruptcy court serving the area where the debtor resides with the filing of a petition along with all the required schedules and documents. The courts charge a case filing fee.  These fees are paid to the clerk of the court upon filing. Once the case is opened, the debtor will also be asked to provide the chapter 13 case trustee with a copy of the tax return or transcripts for the most recent tax year as well as any tax returns filed during the life of the case. This includes tax returns for prior years that had yet to be filed when the case began.

When a chapter 13 petition is filed an impartial trustee is appointed to oversee the case. In this role the chapter 13 trustee will evaluate the case and serve as the disbursing agent, collecting payments from the debtor and making distributions to creditors. Filing the petition under chapter 13 of the bankruptcy code automatically “stays" or stops most all collection actions against the debtor or the debtor's property. For as long as the stay is in effect, creditors normally may not initiate or continue wage garnishment, lawsuits, or even make telephone calls demanding payments. As a direct result of the case filing the bankruptcy clerk will give notice of the bankruptcy case to all creditors named within the case.

Approximately 20 to 30 days after the chapter 13 petition is filed the chapter 13 trustee will hold a meeting of creditors, also known as a 341 meeting. During this meeting, with the debtor under oath, the trustee and creditors may ask questions of the debtor regarding their financial circumstances. The debtor is required to attend this meeting and answer all questions honestly and to the best of their ability. If a married couple files a joint bankruptcy petition, both debtors are required to attend the meeting of creditors and answer any questions asked of them. In the interest of preserving the independence of their judgment, the judge for a bankruptcy case is prohibited from attending the 341 meeting. The best way for the debtor to avoid the discovery of issues at their creditors’ meeting is to make sure that all information contained in the petition and plans are complete and accurate. Honest and complete communication with your chosen attorney in the preparation of your petition, and during the time leading up to your meeting of creditors, will go a long way toward preventing surprises during your hearing. A chapter 13 proceeding can be used by an individual to save their home from foreclosure. The built in automatic stay will stop the foreclosure from proceeding as soon as the individual files the chapter 13 petition. The debtor may then utilize their chapter 13 plan payments to bring the past-due payments current over the life of the plan. If the mortgage company completes the foreclosure sale before the debtor files the petition, the debtor is unlikely to be able to save the home. If preventing the foreclosure of your home is your primary goal, it is important to know that in addition to filing a bankruptcy in a timely manner, it is of the utmost importance that once filed you are able to meet the payment obligations of not only the chapter 13 plan but your regular mortgage payments as well.

Chapter 13 - Making the Plan Work

Once the chapter 13 plan is confirmed by the court it is primarily in the debtor’s hands to make the plan succeed. The success or failure of a chapter 13 plan rests chiefly in the ability of the debtor to make the regular payments to the trustee in a timely manner. While confirmation of the plan may entitle the debtor to retain certain property so long as the payments remain current, the debtor will not be allowed to incur any new debts without approval of the trustee. This rule is in place to ensure that any additional debts do not compromise the debtor's ability to fulfill their obligations under the plan. The court will move to dismiss the case should the debtor fail to make the scheduled payments due under the plan. If the debtor fins that they can no longer meet the obligations of the chapter 13 plan, they may convert their case to a chapter 7 bankruptcy.  It is highly recommended that the debtor discuss the ramifications of such a conversion with a reputable bankruptcy attorney in order to realize the greatest benefit and avoid unintended consequences.

Chapter 13 - The Discharge

To understand the scope of the chapter 13 discharge available to you, debtors are advised to consult competent legal counsel prior to filing.

Upon completion of the chapter 13 payment plan a debtor will be entitled to a discharge of their debts so long as the debtor has also fulfills the following criteria: (1) has completed an approved course in financial management; (2) has not received a discharge in a prior case filed within the specified time frame of two years for prior chapter 13 cases and four years for prior chapter 7, 11 and 12 cases; and (3) certifies (if applicable) that all domestic support obligations that came due prior to making such certification have been paid.. The court will only enter the discharge once it determines, after notice and a hearing, that there is no reason to believe there is any pending proceeding that could incur a limitation on the debtor's homestead exemption.

The discharge releases the debtor from all debts provided for by the plan or disallowed (under section 502), with specific exceptions. Any creditors that are provided for in full or in part within the chapter 13 plan are forbidden from initiating or continuing any legal or other action against the debtor in an attempt to collect on a discharged obligation.

In the average chapter 13 bankruptcy, the discharge unshackles the debtor from all of the debts provided for within the plan or disallowed, with the exception of specific debts. Examples of specific debts that are not discharged in chapter 13 include: certain secured obligations such as a home mortgage, debts for court-ordered maintenance such as alimony or child support, most taxes, debts for the majority forms of government funded or guaranteed educational loans or benefit overpayments, debts incurred through death or personal injury due to the debtor driving while intoxicated or under the influence, and debts for restitution or a punitive fine included as part of a sentence in the debtor's conviction of a crime. To the degree that any debts are not paid in full through the chapter 13 plan, the debtor should expect to still be responsible for these debts once the bankruptcy case has closed. The following types of debts will be discharged unless a creditor files in a timely manner and prevails in an action to have such debts declared nondischargeable; 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. The discharge of debts available in a chapter 13 case is somewhat broader than those available within a chapter 7 case. Debts dischargeable in a chapter 13, but not in chapter 7, include debts arising from property settlements in divorce or separation proceedings, debts for willful and malicious injury to property (as opposed to a person), and debts incurred to pay nondischargeable tax obligations.

The Law Offices of
Stan E. Riddle

Hilltop Commercial Center
3150 Hilltop Mall Road
Richmond, CA 94806
Main: (510) 868-1765
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Hilltop Commercial Center