How Chapter 13 Works
Filing of Case. A
chapter 13 bankruptcy case begins by filing a petition with
the bankruptcy court serving the area where the debtor has a domicile or
residence. Unless the court orders otherwise, the debtor 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. The debtor
must also file a certificate of credit counseling, evidence of payment from
employers, if any, received 60 days before filing; and a statement of monthly net
income and any anticipated increase in income or expenses after filing.
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 well 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.
The courts must charge a $281.00 filing fee. Normally the fees must be paid to the
clerk of the court upon filing. If a joint
petition is filed, only one filing fee and one administrative fee are charged.
Debtors should be aware that failure to pay these fees may result in dismissal
of the case.
In order to complete the Official Bankruptcy Forms
that make up the petition, statement of financial affairs, and schedules, the
debtor must compile 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 the debtor's property; and
- A detailed list of the debtor's 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.
Appointment of Chapter 13 Trustee. When an individual files a chapter 13 petition, an
impartial trustee is appointed to administer the case. The chapter 13
trustee both evaluates the case and serves as a disbursing agent, collecting
payments from the debtor and making distributions to creditors.
Automatic Stay. Filing the petition under
chapter 13 "automatically
stays" (stops) most collection actions against the debtor or the debtor's
property. Filing the petition does not, however, stay certain
types of actions listed under 11 U.S.C. § 362(b), and the stay may be effective
only for a short time in some situations. 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 by the
debtor.
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 incurred by an individual primarily for a personal, family, or
household purpose.
Saving Home from Foreclosure. Individuals may use a chapter 13 proceeding to save
their home from foreclosure. The automatic stay stops the foreclosure proceeding
as soon as the individual files the chapter 13 petition. The individual may then
bring the past-due payments current over a reasonable period of time.
Nevertheless, the debtor may still lose the home if the mortgage company
completes the foreclosure sale under state law before the debtor files the
petition. The debtor may also lose the home if he or she
fails to make the regular mortgage payments that come due after the chapter 13
filing.
Meeting of Creditors. Between 21 and 50 days after the debtor files the
chapter 13 petition, the chapter 13 trustee will hold a meeting of creditors. During this meeting, the trustee places the debtor under
oath, and both the trustee and creditors may ask questions. The debtor must
attend the meeting and answer questions regarding his or her 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. In order to preserve their independent judgment, bankruptcy judges
are prohibited from attending the creditors' meeting. The
parties typically resolve problems with the plan either during or shortly after
the creditors' meeting. Generally, the debtor can avoid problems by making sure
that the petition and plan are complete and accurate, and by consulting with the
trustee prior to the meeting.
After the meeting of creditors, the debtor, 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.
Creditors' Claims. 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, however, has 180 days from the date
the case is filed file a proof of claim.