Chapter 13 Bankruptcy

Chapter 13 bankruptcy is used to reorganize a person's  financial affairs while under the protection of the Bankruptcy Court. 

Chapter 13 Plan

Under Chapter 13, an individual is given the opportunity to propose a Chapter 13 plan to reorganize their debt including taxes, car loans, IRS debt, and credit cards.

The Bankruptcy Code classifies debt into three classes:

1. Secured Claims - such as mortgages and car loans
2. Priority Unsecured Claims - such as certain IRS debt and child support
3. General Unsecured Claims - such as credit cards

A typical Chapter 13 plan has a term of three to five years. The payments under a chapter 13 plan are normally made from the Debtor's regular wages or other source of income.  The Chapter 13 plan payments are made to the Chapter 13 trustee who disburses the payments to creditors in accordance with the Chapter 13 plan.

Chapter 13 Plan Confirmation

The Bankruptcy Code also provides the requirements to be met for a Chapter 13 plan to be confirmed by the Bankruptcy Court.

Chapter 7 and 13 Personal Bankruptcy in Florida

What types of bankruptcy are available?

Chapter 7 bankruptcy and chapter 13 bankruptcy are the two types of  bankruptcy most often used by consumer. Chapter 7 is typically used by those with little non-exempt property and less than median income. Chapter 13 is often used by consumers who desire to propose a chapter 13 plan of reorganization to provide for their various debt over a 3 to 5 year plan of reorganization.

How does a person decide which chapter is best?

Various items need to be considered in determining whether to file for bankruptcy under chapter 7 or chapter 13. One item to be reviewed is the "mean test" which was added to the bankruptcy code in 2005. Also, if a person has substantial property in excess of that which is "exempt," filing under chapter 13 would likely be appropriate.  If a person is behind with their mortgage or in a foreclosure, they would consider using chapter 13 to propose a plan to reinstate their mortgage.

May a person file for bankruptcy for just some of his debt?

A person is required to list all of his or her debt in the bankruptcy case. Those debts that are dischargeable will be discharged. A person though is free to voluntarily repay any debts if they should so desire.

Bankruptcy Creditors' Meeting

In a Chapter 7 or Chapter 13 bankruptcy case, a "creditors' meeting" (or "341 meeting") is held about six  weeks after the bankruptcy case is filed. Although called a "creditors' meeting," in most cases,  no creditors take the opportunity to attend.

A Chapter 7 creditors' meeting is usually presided over by the Chapter 7 trustee and a Chapter 13 creditors' meeting by the standing Chapter 13 trustee. The debtor is required to attend to creditors' meeting unless there are special circumstances to excuse attendance.

At the creditors' meeting the person who filed for bankruptcy - the debtor - is placed under oath and the case and filed bankruptcy schedules are reviewed.

Exemption of Annuities in Florida

Florida law provides a certain exemption for annuities. Florida Statute section 222.14 provides that "the proceeds of annuity contracts issued to citizens or residents of the state,  upon whatever form, shall not in any case be liable to attachment, garnishment ... or legal process in favor of any creditor ... of the person who is the beneficiary of such annuity contract, unless the  ... annuity contract was effected for the benefit of such creditor.

One requirement is that the annuity must be issued to a "citizen" or "resident" of Florida. Sometimes there is a question of whether the item in question actually constitutes an "annuity" and whether the involved person is a "beneficiary" within the meaning of the statute. 

Unsecured Debt in Chapter 13: How Much Must You Pay?

The amount you are required to pay back to your general unsecured creditors in a Chapter 13 Bankruptcy Case depends on various factors.  It can range from only about a few pennies on the dollar to 100% of the debt. The amount required to be paid must be the higher of the "means test” (projected disposable income) and the amount of the chapter 7 liquidation test.

Means Test

The amount you are required to pay back must be at least the amount of your "projected disposable income" as calculated by the "means test" used in Chapter 13.  Basically, your monthly income is calculated and your expenses are deducted, leaving the "projected disposable income."

For purpose of this test, your income is based on the income for the six months period prior to the filing of the bankruptcy case. The expenses used in these test are not your actual living expenses, but they are amounts based on the IRS collection standards for certain items and actual mortgage and car loan debts.

The amount of  expenses is deducted from the income leaving the monthly "projected disposable income." Debtor with income less than median income will only be required to pay for three years, but over-median income debtors are required to pay for five years.

Chapter 7 Liquidation Test

The amount required to be paid back in a Chapter 13 case must be at least as much as the "chapter 7 liquidation test" which is the amount that could be received on a hypothetical chapter 7 liquidation of your property.

Section 541(a) Has Extraterritorial Effect

In the case of In re Rajapakse, 346 B.R. 233 (Bkrtcy.N.D.Gla.2005)(Massey, J.), the Chapter 7 Trustee sought an order directing the pro se chapter 7 Debtor to turn over certain property located outside of the U.S. The Debtor claimed that the property was not property of the estate and was outside the Court's jurisdiction. The Court granted the Trustee's motion and directed the Debtor to turn over and account for all the foreign assets.

Section 541 provides that the commencement of a case creates an estate comprised of property listed in Section 541(a) with certain exceptions, "wherever located and by whomever held." 11 USC 541 (a). The court noted that the phrase "wherever located and by whomever held" is extremely broad and could be interpreted to cover property owned outside of the U.S. The court pointed out though that Section 541 does not expressly state that it applies outside of the U.S.

The court discussed that Congress has the power to enact a statute that applies beyond the territorial borders of the U.S, but that there is a presumption that Acts of Congress do not ordinarily apply outside the borders of the U.S. If a statute does not expressly state that is applies outside of the U.S., a court must determine whether Congress intended the statue to have extraterritorial effect. E.E.O.C. v. Arabian Am. Oil Co., 499 U.S. 244, 248 (1991).

The court concluded that while Section 541 is ambiguous regarding its possible extraterritorial effect, its legislative history is not. The court noted that the House Report accompanying a 1952 amendment to Section 541 makes its clear that a trustee in bankruptcy is vested with the title of the bankrupt in property within or without the U.S. The court noted that Collier on Bankruptcy confirms this interpretation that Section 70a of the Act was amended in 1952 to make it clear that a trustee in bankruptcy is vested with the title to property within or without the U.S. by the addition of the words "wherever located." Collier on Bankruptcy, Vol. $A, para 70.03, p. 35 (14th Ed. 1978). The court noted that other courts addressing this issue have reached the same conclusion. See, e.g. H.K. and Shanghai Banking Corp. v. Simon, 153 F.3d 991, 996 (9th Cir.1998), GMAM Investment Funds Trust I v. Blobo Comunicacoes E. Participacoes S.S, 317 B.R. 235 (S.DN.Y.2004), Deak & Co. v. Soedjono, 63 B.R. 422, 427 (Bankr.S.D.N.Y.1986), Nakash v. Zur, 190 B.R. 763, 768 (Bankr.S.D.N.Y.1996), In re Yukos Oil Co. 321 B.R. 396, 406 (Bankr.S.D.Tex.2005).

Mootness, Equitable Mootness, and Statutory Mootness

The Circuit Court of Appeals of the 3rd Circuit recently issued its opinion in In re SCH Corp., et al, 2014 WL 2724606 involving the doctrine of "equitable mootness" in the bankruptcy context. The District Court had dismissed the appeal from the Bankruptcy Court as being "equitably moot" by applying the five-factor test set forth in In re Continental Airlines, 91 F.3d 553 (3rd Cir. 1996).   In making its decision, the 3rd Circuit reviewed that distinctions between the concepts of "mootness", "equitable mootness", and the "prudence doctrine".  

Constitutional Mootness

The Court explained that the mootness determination it was making in this case, was not that of mootness in the constitutional sense of the limits of the federal courts' authority under Article III, but rather that of  equitable mootness or the application of prudential factors. The Court noted that the Continental decision cited Supreme Court precedent that "an appeal is moot in the constitutional sense only if events have taken place during the pendency of the appeal that make it "impossible for the court to grant ‘any effectual relief whatever.’ ”  The Court noted that a case is not moot merely because a court cannot restore the parties to the status quo ante - but rather,  whether a  court can can fashion some form of meaningful relief, even if it only partially. 

Equitable Mootness 

The Court referred to a 7th Circuit decision that stated: “[t]here is a big difference between inability to alter the outcome (real Article III Constitutional mootness) and unwillingness to alter the outcome (‘equitable mootness') and that these concepts should not be confused.  The Court also noted that another court preferred not to ask whether a case is  "equitably moot", but rather whether it is "prudent" to upset a bankruptcy reorganization plan at a later date.  The Continental Court stated that these “equitable” or “prudential” considerations focus on the following five “concerns unique to bankruptcy proceedings”:  

1.     whether the reorganization plan has been substantially consummated

2.     whether a stay has been obtained

3.     whether the relief requested would affect the rights of parties not before the court

4.     whether the relief requested would affect the success of the plan

5.     the public policy of affording finality to bankruptcy judgments

Statutory Mootness

The Court in SCH Corp. did not reach the concept of "statutory mootness".  This ABI article explains that the concept of statutory mootness is provided for in sections 363(m) and 364(e) of the Bankruptcy Code and are designed to protect capital providers, including purchasers and lenders. 

Further References

Other articles, here  and here, review the Supreme Court denial of cert. in a case involving the issue of equitable mootness in the case of  Law Debenture Trust Co. v. Charter Communications, Inc., No. 12-847.   The doctrine of equitable mootness as applied in the 2nd Circuit is also reviewed in this article by Hunton & Williams, LLP.  

Saving Your Home from Foreclosure under Chapter 13 Bankruptcy

Chapter 13 bankruptcy can be used to save your home or investment property from a mortgage or

association foreclosure. The filing of a Chapter 13 Bankruptcy  case generally stops the foreclosure action and gives you the opportunity to propose a Chapter 13 plan to reorganize your mortgage or association payments. The Chapter 13 case though must generally be filed prior to the foreclosure sale.

Cure Mortgage Arrearages

A  Chapter 13 Plan may provide for the catching up-to-date of your past due mortgage or association payments together with your ongoing regular monthly mortgage or association payments. 

The Bankruptcy Court's Mortgage Modification Mediation Program

You may also apply for a mortgage modification under the Bankruptcy Court's mortgage modification mediation program.  Under this program a mediator is appointed by the Bankruptcy Court to assist in the process, including the furnishing of mortgage modification documents. Communications between the parties are over a special internet portal.

Avoid Second Mortgage 

If your home has decreased in value, sometimes you are able to wipe out or "avoid" your second mortgage.  For example, if you owe $300,000 on your first mortgage and $100,000 on your second mortgage and your home has gone down in value to $250,000, there is no equity or value to "secure" the second mortgage. Under these circumstances, the Chapter 13 Plan may provide to wipe out or avoid the second mortgage lien. The $100,000 debt owed on the second mortgage will be wholly unsecured and usually only receive a small dividend together with other general unsecured creditors.

Chapter 7 and Chapter 13 Bankruptcy

Chapter 7 Bankruptcy 

Chapter 7 bankruptcy is generally used by people who desire to discharge unsecured debt and who have little non-exempt property.

Chapter 13 Bankruptcy 

Chapter 13 bankruptcy is used to reorganize mortgages and other secured debt as well as to discharge unsecured debt.

Chapter 13 bankruptcy is often used to stop a foreclosure action and proposed a plan of reorganization. Due to the decreased real estate values in South Florida, often a junior mortgage lien may be avoidable as an "unsecured debt."

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Bankruptcy Attorney Jordan E. Bublick is a Florida Bankruptcy Lawyer with over 35 years of experience in filing Chapter 13 Bankruptcy and Chapter 7 Bankruptcy cases. He has filed over 8,000 bankruptcy cases. Jordan E. Bublick has been a member of the Florida Bar since 1983 and is a graduate of the Ohio State University College of Law (JD) and the New York University School of Law (LL.M.)

Florida Bankruptcy Lawyer Jordan E. Bublick - Practice Limited to Bankruptcy

Jordan E. Bublick is a Florida bankruptcy lawyer whose practice is limited to Chapter 13 bankruptcy (reorganization of debt) and Chapter 7 bankruptcy (discharge of debt). Jordan E. Bublick has over 35 years of experience in filing personal bankruptcy cases and has filed over 8,000 bankruptcy cases.

The firm offers a free initial consultation.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy allows a person to discharge most types of debt while keeping his "exempt" property. Debt that is dischargeable includes most credit card, unsecured loans, car repossession debt, medical bills, and some federal income taxes. Student loans are in most cases not dischargeable.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows a person to propose a plan of reorganization to reorganize his secured and unsecured debt. It is often used to stop a mortgage foreclosure and to catch the mortgage payments up-to-date. In some cases, one is able to avoid the second mortgage if it is wholly "underwater.".  It is also filed to use the Bankruptcy Court's new Mortgage Mediation program ("LMM") in which the parties meet to negotiate a modification of the mortgage together with a mediator appointed by the Bankruptcy Court.


Jordan E. Bublick holds an undergraduate degree from Brandeis University (BA, 1979), a law degree from the Ohio State University College of Law (JD, 1983) and a masters of law degree from the New York University School of Law (LL.M., 1984)

Introduction to Chapter 13

A Chapter 13 bankruptcy case is started with the filing a petition for Chapter 13 relief with the Bankruptcy Court along with the schedules and statements that reflect the person's financial situation. 

Under Chapter 13, the debtor must submit a plan of reorganization to provide for his various classes of debt - priority, secured, and unsecured. A Chapter 13 debtor is generally required to devote all of his "projected disposable income" to repay a percentage of unsecured debt over a period of three to five years.

A Chapter 13 case is overseen by a Chapter 13 Trustee. The main duties of the Chapter 13 Trustee is to receive the monthly chapter 13 plan payments and to distribute them to the creditors pursuant to the chapter 13 plan.

A Chapter 13 debtor receives a discharge after all payments required under the chapter 13 plan have been completed.

11th Circuit Upholds SD Florida Bankr Decision Allowing 304 Case for Italian Debtor

On June 29, 2007, the 11th Circuit Court of Appeal in its unpublished decision in In re Rosacometta, S.R.L., 244 Fed.Appx. 286 (11th Cir. 2007) upheld the decision of the Bankruptcy Court of the Southern District of Florida. The bankruptcy court had allowed an ancillary petition under section 304 (pre-BAPCPA) and enjoined the creditor from collecting on a writ of garnishment in the state court against the Italian company that had filed for bankruptcy relief in Italy. The 11th Circuit rejected the creditor's arguments that the bankruptcy court had acted outside of its jurisdiction, that it had erred in granting comity to a foreign proceeding, and that it had failed to give full faith and credit to a state court decision refusing to dissolve the writ of garnishment. The 11th Circuit held that the bankruptcy court did not abuse its discretion in weighing the section 304(c) factors and granting section 304(b) relief. The 11th Circuit held that prejudice to the creditor was just one of the five factors for the court to consider per section 304(c) and is not even the "ultimate" factor. The 11th Circuit found that the other factors set forth in section 304(c), including comity, weighed in favor of granting the relief. The 11th Circuit further held that the bankruptcy court is granted broad powers under section 304(b) to grant relief to a foreign debtor.

The bankruptcy court had previously issued its decision dated December 19, 2005 in In re Rosacometta, SrL, 336 B.R. 557 (Bankr.S.D.Fla.2005)(Mark C.J.). In this case, the Italian trustee of an Italian corporation that was a debtor in a bankruptcy case in Italy filed an ancillary case under section 304 (pre-BAPCPA) seeking to enjoin all creditor collection activity in the United States nunc pro tunc to the date of the filing of the bankruptcy in Italy. At issue were certain funds owed to the the debtor in the U.S. that a U.S. creditor was attempting to garnish. The court recognized the effect of the Italian automatic stay and found the creditor action in violation of the stay was void, including the attempted garnishment.

This case came before the court under section 304 as a case ancillary to a foreign bankruptcy proceeding. The case was allowed to proceed under 304 as there was a foreign proceeding and the petitioner was the foreign representative. 11 U.S.C. 304(a). The court explained that section 304 enables United States courts to aid foreign bankruptcy proceedings and to accommodate the extraterritorial effect of these proceeding within the U.S. The primary purpose of section 304 is to prevent piecemeal distribution of a foreign debtor's assets in the U.S. by means of legal proceedings in U.S. courts and to afford the foreign court an opportunity to assess where and when claims should be liquidated in order to conserve resources and to maximize distributions to creditors.

The court found that the creditor was not a secured creditor as the writ of garnishment was served after the commencement of the Italian bankruptcy and was therefore void as in violation of the Italian automatic stay. The court found that recognition of the Italian automatic stay was "other appropriate relief" under section 304(b)(3) and consistent with the overall purpose of section 304 and the specific criteria of 304(c). The court held that the claimed funds should be returned to Italy where the creditor may pursue its claim.

The bankruptcy court found the reasoning of Artimm , 278 B.R. 832, 840 (Bankr.C.D.Cal.2002) as persuasive and found that the Italian automatic stay applied extra territorially. The Artimm court concluded that the Italian automatic stay has worldwide effect as Italian law provides for a stay of all creditor collection activities and claims worldwide jurisdiction over the property of the debtor. Id. at 840. The Artimm court also found that provisions of Italian law indicate movement in Itlian law towards handling international insolvencies under the "universal" approach, which advocates treating an international bankruptcy as a single case in which assets and creditor are treated equally wherever they may be located. Id. at 841.

The bankruptcy court stated that many courts have noted that comity is the ultimate factor in determining whether section 304 relief is appropriate. The Supreme Court described comity as "the recognition which one nation allows within its territory to the legislative, executive, or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of tis own citizens..." Hilton v. Guyot, 159 U.S. 113 (1895). Comity is extended to a foreign court if that court is a court of competent jurisdiction and if the laws and public policy of the forum state and the rights of its residents will not be violated. Cunard S.S. Co., Ltd. v. Salen Reefer Services AB, 773 F.2d at 452 (2d Cir.1985). Comity should not be withheld unless its extension would be inimical to the interest of the United States. Cunard, 773 F.2d at 457. The interest of the United States in granting comity is to ensure that “the assets of a debtor are dispersed in an equitable, orderly, and systematic manner, rather than in a haphazard, erratic, or piecemeal fashion.” Cunard, 773 F.2d at 458. United States courts, therefore, have “consistently recognized the interest of foreign courts in liquidating or winding up the affairs of their own domestic business entities.” Id. at 458. Moreover, “every person who deals with a foreign corporation impliedly subjects himself to such laws of the foreign government, affecting the powers and obligations of the corporation with which he voluntarily contracts, as the known and established policy of that government authorizes.” Id. Therefore, U.S. creditors of a bankrupt foreign corporation may be required to assert their claims against the foreign debtor before a foreign court. Cunard, 773 F.2d at 458-59.

The Florida bankruptcy court found that extending comity to the Italian bankruptcy case and the laws of Italy was appropriate as the bankruptcy in Italy was proceeding under the aegis of a court of competent jurisdiction in accordance with the laws and policies of Italy. It further found that extending comity would result n an orderly and fair distribution to all creditors on a worldwide basis. Furthermore, the laws governing the Italian bankruptcy case comported with U.S. standards of procedural fairness and are not inimical to the law or policy of the U.S. The court noted that at least two U.S. court have previously extended comity to Italian bankruptcy proceedings.

Furthermore, the bankruptcy court found that the statutory factors of 304(c) were met, including the just treatment of all holders of claims against or interest in the estate, protection of claim holders in the U.S. against prejudice and inconvenience in processing of claim in the foreign proceeding, prevention of preferential or fraudulent dispositions of property of the estate, and distribution of proceeds of the estate are substantially in accordance with the order prescribed in the bankruptcy code.