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 explain 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 a 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.

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 the average 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. If a person has substantial property in excess of that which is "exempt," filing under chapter 13 would likely be appropriate.  Also is 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.

Can a future employer consider my bankruptcy in a hiring decision?

Goverment employers may not deny employment to those who file for bankruptcy. Private employers may not terminate an employee because of a bankruptcy filing. Although technically a private employer can refuse to hire a person on account of a bankruptcy filing, often the discharge of debt makes a person a better candidate with his financial situation resolved.

May a person file for bankruptcy for just come 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 Lawyer Miami - Jordan E. Bublick - Practice Limited to Bankruptcy

Jordan E. Bublick is a Miami personal 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 25 years of experience in filing personal bankrupty 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)

New Subchapter V Small Business Bankruptcy Reorganization

The Small Business Reorganization Act of 2019 (the "SBRA"), which went into effect on February 18, 2019, provides for simplified small business reorganization for individuals and business entities under the new subchapter V of chapter 11. Subchapter V resembles the provisions of chapter 12 for family farmers, but incorporates also some of the provisions that apply in a regular chapter 11.  The legislative purpose of the SBRA was to provide for a fast track for small businesses to confirm a plan of reorganization with the assistance of a subchapter V trustee. 

Eligibility

For the new subchapter V provisions to apply, the debtor needs to elect so on its petition. To be eligible for subchapter V, the debtor must be engaged in "commercial or business activities" and 50 percent or more of its debt must arise from its commercial or business activities. 

Debtor in Possession

Subchapter V provides for the debtor to remain in possession of its assets and to operate his or its business with the rights and powers of a trustee unless the Court orders otherwise.  

Upon the election under subchapter V, the debtor generally must file the following financial documents:

        1. most recent balance sheet

        2. statement of operations

        3. cash-flow statemen

        4. federal income tax return  

During the case, the debtor must file periodic reports which contain information regarding: 

    1. the debtor’s profitability 

    2. reasonable approximations of the debtor’s projected case receipts and cash disbursements

    3. comparisons of actual case receipts and disbursements with projections in earlier reports 

    4. whether the debtor is in compliance with Bankruptcy Code postpetition requirements 

    5. whether the debtor is timely filing tax returns and paying taxes and administrative expenses when 

        due

 

Subchapter V Trustee

A subchapter V trustee is to be appointed in all subchapter V cases.  The role of the subchapter V trustee is to monitor the case and to assist the parties in achieving a consensual subchapter V plan. The subchapter V trustee is to make the plan payments to the creditors under confirmed nonconsensual plans. 

Subchapter V permits, but does not require, the debtor to make adequate protection payments through the trustee. 

Subchapter V Plan 

Only the debtor may file a plan in a subchapter V case.  The plan must be filed within 90 days after the filing of the case unless the court extends the time period. Normally, the information that would typically appear in a separate disclosure statement is to be part of the subchapter V plan. 

The Bankruptcy Court may confirm the plan even if all classes of creditors reject it. Subchapter V also does away with the "absolute priority rule." But to be approved, the plan must comply with the new projected disposable income requirements. 

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 case generally stops the foreclosure case and gives you the opportunity to propose a plan to reorganize your mortgage or association payments. The chapter 13 case though must be filed before the foreclosure sale.

Cure Mortgage Arrearages

One typical Chapter 13 Plan provides for the catching up-to-date of your past due mortgage or association payments. The Chapter 13 Plan usually involves paying off the mortgage or association arrearages over a 3 to 5 year period in addition to making your regular ongoing monthly mortgage or association payments.


The Bankruptcy Court's Mortgage Modification Mediation Program

The Bankruptcy Court in Miami started a new mortgage mediation program on April 1, 2013. Under this program a mediator is appointed by the Bankruptcy Court to assist in the process and documents and communications are exchanged 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.

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 a few pennies on the dollar to a 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 you "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. If the income changes, higher or lower, the new figure may be required to be used. 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.

Chapter 7 and 13 Bankruptcy Relief

(305) 891-4055 - Free Initial Consultation - Office: North Miami - Kendall - Bankruptcy Attorney Jordan E. Bublick - 25 Years Experience - www.bublicklaw.com

Chapter 13 and chapter 7 bankruptcy each provides for different requirements and relief.  In general chapter 13 provides for an opportunity to reorganize your debt and chapter 7 provides for an opportunity to just discharge your debt.

Chapter 13

 

Chapter 13 bankruptcy is often used by people with higher incomes and substantial non-exempt property to formulate a chapter 13 plan to reorganize their debt while under the protection of the bankruptcy court. Under a chapter 13 plan, you are able to reorganize your secured debt (such as mortgages and car loans) as wells as unsecured debt (credit cards and personal loans).  Often you are only required to back only  10% to 20% of you unsecured debt and discharge the rest. A typical chapter 13 plan is over a period of 3 to 5 years.

Chapter 7 

Chapter 7 bankruptcy is usually used by people with lower income and little non-exempt property. Under chapter 7 unsecured debt, such as credit cards and loans, is discharged, unless it falls within the categories of non-dischargeable debts, such as student loans and some types of taxes.

Mortgage Modification

Chapter 13 bankruptcy is also used by people who are behind with their mortgages and to save their homes from foreclosure. Under a chapter 13 plan, you are able to take various approaches. You may reinstate your mortgage by catching up-to-date your past due payments over a period of up to 5 years.

Totally underwater second mortgages on residential property may be wholly avoided. Maintenance association liens may be avoided to the extent they are not secured by equity in the real estate.

Mortgage Modification Mediation

You may use the bankruptcy court's new mortgage modification mediation program ("MMM") [previously called the loss mitigation mediation ("LMM") program]  to negotiate with your mortgage company to achieve a modification of your mortgage.