Chapter 13

FREQUENTLY ASKED QUESTIONS

If you are considering filing for chapter 13 bankruptcy you likely have more questions than answers. Perhaps you are wanting to stop a foreclosure or finally resolve issues with the Internal Revenue Service.  If so, these FAQs may hold the answers to your questions.  This website contains a wealth of information on bankruptcy. Be sure to explore the entire website and any links of interest.  For a more personal response to your questions, please contact one of our bankruptcy attorneys directly at (972) 578-1400 or via email to set up a free initial consultation.  We are conveniently located in the cities of Dallas and Plano.

What is a debtor?

What is chapter 13 bankruptcy and how does it work?

When should I consider filing a chapter 13 bankruptcy?

Do I need a lawyer to file a chapter 13 bankruptcy petition?

Does my spouse have to file chapter 13 bankruptcy with me?

Do I have to file chapter 13 bankruptcy against ALL of my creditors?

What is a chapter 13 discharge?

What is a chapter 13 plan?

What is a chapter 13 trustee?

Must I pay all of my creditors in full under a chapter 13 plan?

How much will I need to pay to the chapter 13 bankruptcy trustee?

When must I start making payments to the chapter 13 bankruptcy trustee?

How does chapter 13 deal with joint, co-signed or guaranteed debts?

Will a chapter 13 bankruptcy stop my creditors from calling?

Will a chapter 13 bankruptcy stop a foreclosure or repossession?

If my car was repossessed will a chapter 13 bankruptcy help me get my car back?

Who is eligible for relief under chapter 13 of the Bankruptcy Code?

May a person who is self-employed file for relief under chapter 13 of the Bankruptcy Code?

If I have been sued by one of my creditors, will a chapter 13 bankruptcy stop the lawsuit?

May a person whose debts are being administered by a financial counselor (i.e. Consumer Credit Counselors) file a chapter 13 bankruptcy?

What is required for court approval of the chapter 13 plan?

What if the Bankruptcy Court does not approve a filed chapter 13 plan?

What if the debtor is temporarily unable to make the chapter 13 payments?

What if the debtor incurs new debts or needs credit during a chapter 13 case?

What should the debtor do if he or she moves while the case is pending?

What if the debtor later decides to discontinue the chapter 13 case?

Must all of my creditors approve of my chapter 13 plan?

Will filing chapter 13 affect my credit?

How long will a chapter 13 bankruptcy appear on my credit report?

Will filing chapter 13 bankruptcy affect my job?

Can I keep using my credit cards after filing a chapter 13 bankruptcy petition?

What is a debtor?

A debtor is a person who owes someone else money. On the other hand, a creditor is someone who is owed money.

What is chapter 13 bankruptcy and how does it work?

A chapter 13 bankruptcy provides a process for repaying all or a portion of one’s debts under the supervision and protection of the bankruptcy court. This same framework is also a great vehicle for getting current on past due mortgage or car loan payments. In a chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. The plan must be approved by the court to become effective. If the court approves the chapter 13 plan, most creditors will be prohibited from collecting their claims from the debtor during the course of the case. The debtor must make regular payments to the chapter 13 bankruptcy trustee, who collects the money paid by the debtor and disburses it to creditors in the manner called for in the plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts.

When should I consider filing a chapter 13 bankruptcy?

Chapter 13 is usually preferable for a person who:

• wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time;

• has significant tax obligations and needs an efficient and effective way or resolving those debts;

• is past due no mortgage or car payments and needs an opportunity to get current;

• has valuable nonexempt property  which would be lost in a chapter 7 case;

• is not eligible for a discharge under chapter 7, but still needs relief from creditors;

• has one or more substantial debts that are dischargeable only under chapter 13; or

• has sufficient assets with which to repay most debts, but needs temporary relief from creditors in order to do so.

Do I need a lawyer to file a chapter 13 bankruptcy petition?

No, but the process is not as straight forward as you might believe. The wrong answer to a few simple questions can lead to dire results such as the dismissal of your chapter 13 bankruptcy case. It is highly recommended that you retain competent legal representation.

Do not be penny wise and pound foolish. Most chapter 13 bankruptcy attorneys will defer most of their fees and have them paid through the chapter 13 plan. The net effect, in most cases, is that your creditors effectively pay for your legal representation.

Does my spouse have to file chapter 13 bankruptcy with me?

No. In fact, unlike chapter 7, joint debtors (often the non-filing spouse) benefit from the automatic stay to the same extent as does the debtor as regards consumer debts. On the other hand, it is often a good idea when there are significant joint debts. The chapter 13 plan will not discharge the non-filing spouse from the unpaid portion of the joint debts.

Do I have to file chapter 13 bankruptcy against ALL of my creditors?

Yes. Whether the debt is owed to a bank, a relative or a friend, all creditors must be listed. When you sign your bankruptcy schedules you are stating under penalty of perjury that all of your creditors have been listed. An intentional failure to list a creditor may constitute cause for conversion or dismissal and would prevent that debt from being discharged as it was not provided for in the chapter 13 plan. On the other hand, mistakes do happen, and in those instances you will usually be allowed to amend your schedules and modify your plan as needed.

What is a chapter 13 discharge?

It is a court order releasing a chapter 13 debtor from all dischargeable debts and ordering creditors not to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay. There are two types of chapter 13 discharges: a full or successful plan discharge, which is granted to a debtor who completes all payments called for in the plan, and a hardship discharge, which is granted to a debtor who is unable to complete the payments called for in the plan due to circumstances for which the debtor should not be held accountable.

What is a chapter 13 plan?

It is essentially a contract approved by the Bankruptcy Court binding you and your creditors to certain terms respecting the repayment (or partial repayment as the case may be) of your debts. The plan will state how much money or other property the you will pay to the chapter 13 trustee, when your creditors will be paid, how long you will make payments to the chapter 13 trustee, and which creditors will be paid outside of the chapter 13 plan.

What is a chapter 13 trustee?

A chapter 13 trustee is a person appointed by the Office of the United States Trustee to collect payments from the chapter 13 debtor for the purpose of disbursing those payments to the debtor’s creditors in the manner set forth in the debtor’s chapter 13 plan, and to administer the debtor’s chapter 13 case until it is closed.

Must I pay all of my creditors in full under a chapter 13 plan?

No. While certain priority debts, such as debts for alimony, maintenance and support and debts for taxes, must be paid in full under a chapter 13 plan, only a percentage of the amount due and owing your general unsecured creditors need be paid. The amount of money paid to your general unsecured creditors will vary depending upon the amount of net disposable income available for distribution.

How much will I need to pay to the chapter 13 bankruptcy trustee?

You must devote all of your net disposable income to fund your chapter 13 plan for a period of three to five years. Net disposable income is the income received by you and your spouse (if married) over and above what is not reasonably necessary for the support of the debtor and the debtor’s dependents. You net disposable income is determined based upon a review and analysis of your means test and budget.

When must I start making payments to the chapter 13 bankruptcy trustee?

You must begin making payments to the chapter 13 trustee within 30 days after the debtor’s plan is filed in the court, and the plan must be filed with the court within 14 days after the case is filed. The payments must be made regularly, usually on a monthly basis. If the debtor is employed, some courts require the payments to be made by the debtor’s employer, otherwise, the payments can be made by the debtor.

How does chapter 13 deal with joint, co-signed or guaranteed debts?

If a joint, cosigned or guaranteed CONSUMER debt is being paid in full under a chapter 13 plan, the creditor may not collect the debt from the non-filing joint debtor, cosigner or guarantor. If the debt is not a consumer debt, the creditor, regardless of the plan provisions, may continue to attempt to collect that debt from the non-filing joint debtor, cosigner or guarantor. On the other hand, if a consumer debt is not being paid in full under the plan, the creditor may collect the unpaid portion of the debt from the non-filing joint debtor, cosigner or guarantor after the chapter 13 case is over or the automatic stay is lifted.

Will a chapter 13 bankruptcy stop my creditors from calling?

Yes. Section 362(a) of the Bankruptcy Code (the automatic stay provision) prevents creditors from taking any action to collect debts. The automatic stay also prevents secured creditors from foreclosing, seizing, and repossessing their collateral. Once a creditor learns of any bankruptcy filing, that creditor must immediately stop all collection efforts.

Creditors receive notice of the bankruptcy shortly after the petition date based upon the addresses you provided in your schedules. Should a creditor call you after the case is filed, simply advise them of the bankruptcy filing and provide them with the case number and the petition date. Sometimes, you cannot just sit back and wait. A more proactive approach will be required. In those situations you or your attorney should contact the creditor immediately after filing the bankruptcy petition. Examples requiring immediate notification include: (1) pending litigation, (2) possible repossession, or (3) possible foreclosure.

Will a chapter 13 bankruptcy stop a foreclosure or repossession?

Yes. In fact, chapter 13 is the ideal vehicle to save your home from an impending foreclosure or a car from repossession. Not only will a chapter 13 bankruptcy stop the foreclosure or imminent repossession (assuming timely notice is provided to the secured lender), but it will allow you up to bring your mortgage or car payments current. If you have received a notice of foreclosure or fear repossession of your car, you should give serious consideration to filing a chapter 13 bankruptcy petition.

If my car was repossessed will a chapter 13 bankruptcy help me get my car back?

Yes. A secured creditor, upon learning of the chapter 13 bankruptcy case, has an affirmative duty to return the vehicle if the vehicle was not previously sold at auction and the value of the vehicle to the bankruptcy estate is inconsequential. Moreover, a secured creditor’s continued retention of a repossessed vehicle after learning of the bankruptcy case is a violation of the automatic stay. Nissan Motor Acceptance Corporation v. Baker, 239 B.R. 484, 487-488 (N.D.Tex 1999).

Who is eligible for relief under chapter 13 of the Bankruptcy Code?

Any natural person may file under chapter 13 if the person:

• resides in, does business in, or owns property in the United States has regular income;

• has unsecured debts of less than dollar cap set forth in section 109(e) of the Bankruptcy Code;

• has secured debts of less than dollar cap set forth in section 109(e) of the Bankruptcy Code;

• is not a stockbroker or a commodity broker; and

• has not been a debtor in another bankruptcy case that was dismissed within the last 180 days on certain technical grounds.

A person meeting the above requirements may file under chapter 13 regardless of when he or she last filed a bankruptcy case or received a bankruptcy discharge. Corporations, partnerships and limited liability companies may not file for relief under chapter 13.

May a person who is self-employed file for relief under chapter 13 of the Bankruptcy Code?

Yes. A self-employed person meeting the eligibility requirements for a chapter 13 debtor may file chapter 13 bankruptcy petition. A debtor engaged in business may continue to operate the business during the chapter 13 case.

If I have been sued by one of my creditors, will a chapter 13 bankruptcy stop the lawsuit?

Yes. A chapter 13 bankruptcy case will stop most civil lawsuits and IRS proceedings. On the other hand, a chapter 13 bankruptcy case will not stop certain divorce or criminal proceedings.

May a person whose debts are being administered by a financial counselor (i.e. Consumer Credit Counselors) file a chapter 13 bankruptcy?

Yes. A financial counselor has no legal right to prevent a person from filing any type of bankruptcy case, including a chapter 13 case. In fact, a chapter 13 bankruptcy is often more beneficial than consumer credit counseling services or certain debt settlement programs.

What is required for court approval of the chapter 13 plan?

The Bankruptcy Court may confirm a chapter 13 plan if: (1) the plan complies with the legal requirements of chapter 13; (2) all required fees, charges, and deposits have been paid; (3) all priority claims will be paid in full under the plan; (4) the plan was proposed in good faith; (5) each unsecured creditor will receive under the plan at least as much as it would have received had the debtor filed under chapter 7; (6) it appears that the debtor will be able to make the required payments and comply with the plan; and (7) each secured creditor receives no less than the value of its collateral (by accepting the plan, by being paid that value, by surrender of the collateral, or by being paid pursuant to the original terms outside of the plan).

What if the Bankruptcy Court does not approve a filed chapter 13 plan?

If the Bankruptcy Court will not approve the Chapter 13 plan proposed by a debtor, the debtor may amend the plan and seek Bankruptcy Court approval of the amended plan. The Bankruptcy Court will usually give specific reasons for refusing to confirm the chapter 13 plan. This affords the debtor the ability to appropriately modify the chapter 13 plan in a manner that is acceptable to the Bankruptcy Court. A debtor who does not wish to amend a proposed plan may either convert the case to chapter 7 or dismiss the case.

What if the debtor is temporarily unable to make the chapter 13 payments?

Depending on the reason for not making the chapter 13 plan payments, there are at least three options available. One, convert the case to one under chapter 7. Two, modify the chapter 13 plan to reflect your new budget. Three, work out an arrangement with the chapter 13 trustee to bring the plan payments current.

What if the debtor incurs new debts or needs credit during a chapter 13 case?

There are three situations in which a chapter 13 debtor will incur post-petition debt. These are: (1) debts for taxes that become payable while the case is pending, (2) utilities that become payable while the case is pending, and (3) consumer debts approved by the Bankruptcy Court which debts are necessary for the debtor’s performance under the plan (i.e. a car loan). Other than the above debts, a chapter 13 debtor should not be incurring any debt during the life of the chapter 13 plan.

What should the debtor do if he or she moves while the case is pending?

The debtor should immediately notify the Bankruptcy Court and the chapter 13 trustee in writing of the new address. Most communications in a chapter 13 case are by mail, and if the debtor fails to receive an order of the Court or a notice from the chapter 13 trustee because of an incorrect address, the case may be dismissed. More importantly, however, is the fact that any move will likely mean substantial changes to your budget. You will need to review your bankruptcy schedules and your chapter 13 plan to see what has changed. At this point you will likely need to modify your chapter 13 plan. Try to accomplish before you move as the relief requested might require a hearing.

What if the debtor later decides to discontinue the chapter 13 case?

A chapter 13 debtor has the absolute right to either dismiss or convert their chapter 13 bankruptcy case at any time for any reason, so long as it is in good faith.

Must all of my creditors approve of my chapter 13 plan?

No. A chapter 13 plan, in order to become effective, need only be approved by the Bankruptcy Court. Unlike chapter 11, the chapter 13 creditors are not afforded the opportunity to vote on the plan. The Bankruptcy Court cannot, however, approve a plan unless the secured creditors are dealt with appropriately. The Bankruptcy Court will approve the chapter 13 plan only if: (1) the secured creditors accept the proposed plan; (2) the secured creditor retains its lien and is paid the full amount of its secured claim under the plan; (3) the debtor surrenders the collateral to the secured creditor; or (4) the secured creditor is paid outside of the chapter 13 plan and its claim remains unmodified by the chapter 13 plan. Also note that unsecured creditors are permitted to file objections to the chapter 13 plan, and that these objections must be ruled on by the Bankruptcy Court before it can approve the chapter 13 plan.

Will filing chapter 13 affect my credit?

Yes. All events affecting your credit are recorded. That includes prompt payments, slow pays, charge-offs, and judgments as well as a bankruptcy filing. If you are currently contemplating bankruptcy, then it is likely that your current credit rating has already been negatively impacted. A chapter 13 bankruptcy discharge will usually remain on a credit bureau for seven years, whereas a chapter 7 discharge will likely remain on a credit bureau for ten years. However, much, if not all, of the negative impact can be ameliorated. A chapter 13 debtor that continues to make payments timely to creditors paid outside of the chapter 13 plan will have very little difficulty obtaining additional credit at reasonable rates upon discharge. The reality is that most people find they are able to completely rebuild their credit within 3 to 5 years (the typical length of a chapter 13 plan).

How long will a chapter 13 bankruptcy appear on my credit report?

A chapter 13 bankruptcy will usually remain on your credit report for a period of seven years.

Will filing chapter 13 bankruptcy affect my job?

No. First, you should note that although bankruptcy records are public, most employers will never learn of the bankruptcy unless you a tell them. More importantly, the Bankruptcy Code specifically prohibits any employer from discriminating against you because you filed a chapter 13 bankruptcy petition.

Can I keep using my credit cards after filing a chapter 13 bankruptcy petition?

Absent Bankruptcy Court approval — No. While you are in chapter 13 you are not allowed to borrow any money absent prior approval from the Bankruptcy Court. That includes using any credit cards.