Chapter 13 Bankruptcy

Chapter 13 is a repayment plan for individuals with regular income and unsecured debt less than $360,475 and secured debt less than $1,081,400. The debtor keeps his property and makes regular payments to the Chapter 13 trustee out of future income to pay creditors over time (3-5 years). Repayment in Chapter 13 can range from 0% to 100% depending on the debtor’s income, the value of non exempt assets and the make-up of the debt. Certain debts that cannot be discharged in Chapter 7 can be discharged in Chapter 13 also provides a mechanism for individuals to prevent foreclosures and repossessions, while catching up on their secured debts and to strip off liens that are really unsecured.

What to Expect at the Creditor’s Meeting

Chapter 13 Creditor’s Meeting:

When the hearing begins, the Trustee will call the calendar and introduce himself. He talks about what will occur at the meeting. The trustee will call debtors individually and will ask questions for approximately 5 minutes. Creditors, if present, will be allowed to ask questions too, for 5 minutes per case per debtor. The debtor should have their Social Security card and ID ready to show to the trustee when their name is called. The trustee may require all payments into the Chapter 13 plan to be made in cashier’s check or money order. Debtors are not allowed to incur new debt. If you must purchase a car, the trustee must approve the purchase. You can only sell or refinance your real property with permission of the trustee. Permission is only given to Title companies when in escrow. In other words, the deal must be already in place.

The Trustee calls the name of the first debtor. The debtor and their attorney comes up to the table. The attorney sits on one side of the table and the debtor on the other side. (Picture a long cafeteria-style table. The trustee and her assistants are sitting at the middle of the table facing the front of the room. The attorney and debtor are sitting at the far ends of the table opposite each other).

The trustee asks for debtor’s ID and Social Security Card.

The attorney states his or her appearance for the record.

The Trustee swears in the Debtor: “Do you solemnly affirm under penalty of perjury that the testimony that you are about to give is the truth, the whole truth, and nothing but the truth”?

Trustee states for the record: “I have seen the debtor’s Social Security card and identification and Social Security number on the card matches the number on the petition.”

The trustee then asks the debtor the following questions:

“Is your home address still: “[Home Address]“?

“And do you still work at [Place of employment] as an [occupation]“?

If the debtor owns a car and is keeping it: “Is your car insured”? “Have you made the necessary car payments”?

If the debtor is not keeping the car, “Are you surrendering the car”?

“Do you own any real estate”? If yes, “Have you made all the necessary house payments since the petition was filed”?

“When did you make those payments”?

“Is the house insured”?

“Do you pay the property taxes directly”?

“Are the property taxes current”?

“Have you filed all tax returns for the last five years”? If not, “When will they be filed”?

“Do you owe any money to the IRS or any other taxes? ”

If debtor has credit card debt, “Have you destroyed all your credit cards”?

“Do you believe that you can make monthly payments of [Chapter 13 plan payment] per month”?

“Did you review the bankruptcy petition and schedules before signing them”?

“Is everything in the petition and schedules true and correct”?

Are there any creditors that wish to be heard in this matter?

If everything runs smoothly, the trustee states that she will recommend to the Judge that the Chapter 13 plan be confirmed.

That’s it! When they say that it will last about 5 minutes, they usually mean it. The only exception might be if there are objections of some kind to the plan or a married couple is filing in which case the meeting may last a few minutes longer.

Chapter 7 Creditor’s Meeting

A Chapter 7 Creditor’s Meeting is very similar to the Chapter 13 Creditor’s Meeting.

You will be required to provide the trustee a week in advance a copy of your last tax return, bank statements at the time of bankruptcy filing, pay stubs, and a copy of any lease or executory contract. Like the Chapter 13 Creditor’s Meeting, you will be required to show you a valid ID and social security card.

The hearing will last approximately 5 minutes and you will be asked if you are expecting to come across any money along with questions similar to the Chapter 13 proceeding such as whether you own any property, if you have any equity in the property, and finally, if you reviewed the bankruptcy petition and schedules before signing them.

Chapter 13 Bankruptcy

There are many reasons for choosing Chapter 13 bankruptcy instead of Chapter 7 bankruptcy. Generally, you are probably a good candidate for Chapter 13 bankruptcy if any of the following apply to you:

You have a sincere desire to repay your debts, but you need the protection of the bankruptcy court to do so.
You are behind on your mortgage or car loan, and want to make up the missed payments over time and reinstate the original agreement. You cannot do this in Chapter 7 bankruptcy.
You need help repaying your debts now, but need to leave open the option of filing for Chapter 7 bankruptcy in the future. This would be the case if for some reason you can’t stop incurring new debt.
You are a family farmer who wants to pay off your debts, but you do not qualify for a Chapter 12 family farming bankruptcy because you have a large debt unrelated to farming.
You have valuable nonexempt property. When you file for Chapter 7 bankruptcy, you only get to keep exempt property. If you have a lot of nonexempt property (which you’d have to give up if you file a Chapter 7 bankruptcy), Chapter 13 bankruptcy may be the better option.
You filed a Chapter 7 bankruptcy within the previous eight years. You cannot file for Chapter 7 again until the eight years are up.

A Chapter 13 can be filed if:

The debtor received a discharge under Chapter 7, 11 or 12 more than four years ago; or
the debtor received a discharge under Chapter 13 more than two years ago.
You have a co-debtor on a personal debt. If you file for Chapter 7 bankruptcy, your creditor will go after the co-debtor for payment. If you file for Chapter 13 bankruptcy, the creditor will leave your co-debtor alone, as long as you keep up with your bankruptcy plan payments.
You have a tax debt. If a large part of your debt consists of federal taxes, Chapter 13 may be best for you.

If any of the following situations apply to you, you will have to add time to the three-year, two-year or 240-day rules for your debts to qualify for discharge in bankruptcy:

If you submitted an Offer in Compromise, the 240-day rule is delayed by the period of time from when the Offer is made until the IRS rejects it or you withdraw it, plus 30 days.
If you obtained a Taxpayer Assistance Order from an IRS Problems Resolution Officer preventing the IRS from collecting, the bankruptcy court may require that you add the time collection was suspended to the three-year, two-year and 240-day requirements.
If you filed a previous bankruptcy case, all three time periods stopped running while you were involved in the prior bankruptcy case. You must add the duration of your case plus six months to all three.

Caution! A Chapter 7 bankruptcy will only dissolve your personal obligation to pay the debt. Any lien recorded before you file for bankruptcy remains.

After your bankruptcy, the IRS can seize any property you owned at the time the bankruptcy was filed. But this doesn’t mean that after your bankruptcy case is over the IRS will necessarily repossess your property. Post-bankruptcy, the IRS tends to seize only real estate and retirement accounts or pensions. And even then, IRS seizures generally take place only when a taxpayer has made no efforts to otherwise resolve the problem. Furthermore, IRS collectors must obtain approval from their supervisors before seizing a house or pension. The IRS is very concerned about negative publicity.

New law which took effect in 2005:

Chapter 13 cannot be filed unless:
- The debtor received a discharge under Chapter 7, 11 or 12 more than four years ago; or
- the debtor received a discharge under Chapter 13 more than two years ago.
When a motor vehicle was purchased within 910 days (2 1/2 years) of the filing and a secured creditor has a lien on it, the creditor retains the lien until payment of the entire debt has been made.
The following debt is NOT discharged:
- debt for trust fund taxes;
- taxes for which returns were never filed or filed late (within two years of the petition date);
- taxes for which the debtor made a fraudulent return or evaded taxes;
- domestic support payments;
- Student loans;
- Drunk driving injuries;
- Criminal restitution;
- Civil restitutions or damages awarded for willful or malicious personal actions causing personal injury or death.
All tax returns for the four years prior to filing Chapter 13 must be filed.
Debtors must provide to the trustee, at least seven days prior to the 341 meeting, a copy of a tax return or transcript of a tax return, for the period for which the return was most recently due.

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