Chapter 13 is a debt repayment plan overseen by the Bankruptcy Court. It was formerly called “the wage earners plan” but now is officially known as the “adjustment of debts of an individual with regular income.” As the latter title suggests, not everyone is eligible to file a Chapter 13 case.
Only an individual (and his or her spouse in a joint case) can file under Chapter 13. The individual has to have some form of regular income. This includes, but is not limited to, wages, government benefits, annuities, pensions, support payments, etc. And, there are ceilings on the amounts of debt that an individual can owe. 11 U.S.C. Section 109(e). Individuals who wish to file a Chapter 13 case also must complete the required credit counseling course before they will be eligible.
Generally, when a Chapter 13 case is filed, a temporary injunction called the automatic stay immediately goes into effect. With some exceptions, the automatic stay prevents creditors from taking action to collect from the debtor or the debtor’s property. It applies to phone calls, collection letters, lawsuits, garnishments, repossessions, foreclosures, etc. The purpose of the automatic stay is to give the debtor some breathing room, preserve the bankruptcy estate, and promote the debtor’s ability to reorganize his or her debts.
Chapter 13 allows the debtor to propose a repayment plan where the debtor will make regular payments to the Chapter 13 trustee. Nancy J. Whaley is the Standing Chapter 13 Trustee for the Gainesville Division. As a general rule, these payments are made pursuant to a wage deduction order. Where a wage deduction order is not available, the debtor can make the payments directly to the trustee either by check/money order or electronic transfer. Payments to the trustee should start no later than 30 days after the case is filed. Once the plan is approved by the Court, the trustee begins monthly disbursements to the creditors who have filed claims in the case.The debtor might also continue to pay some debts directly rather than through the trustee. These debts typically are (a) long-term debts like on-going mortgage and child-support payments, or (b) leases. If the debtor is behind on those debts when the case is filed, Chapter 13 will allow the debtor to begin making the current payments as they come due and the back payments will be cured through the debtor’s payments to the trustee. If the debtor defaults on the direct payments, the creditor may come into court and ask that the automatic stay be modified to allow the creditor to pursue its collection rights under state law. These motions usually can be resolved by consent agreements where the debtor agrees to catch up the missed payments over time.
Many people believe that the Chapter 13 plan payment is based solely on the amount of money they have left over each month after taking care of all of their living expenses (i.e. their disposable income). This is a common misconception. In fact, the amount of the plan payment is determined by several different factors, including: (a) disposable income; (b) how much would unsecured creditors receive if the debtor filed for relief under Chapter 7 (the Liquidation Test); (b) the amount of the secured and priority claims that are being paid through the trustee; (c) the presumptive amount the debtor should be able to repay as established by the Means Test; (d) how recently certain debts were incurred; (e) whether there are any co-signors or transferees which the debtor wishes to protect; (f) foreseeable changes in the debtor’s income, either up or down; and, (g) “good faith” considerations – for example, is the debtor trying to keep a luxury item while paying $00 back to his or her unsecured creditors?FREE CASE EVALUATION
If the debtor is not proposing to repay all of his or her creditors in full, then the debtor must pay into the case for the entire Applicable Commitment Period (ACP). The ACP is determined by the debtor’s household size, current monthly income, and the geographic area where he or she lives. The ACP is either 36 or 60 months. Many debtors confuse the ACP with the amount of time that their case actually is calculated to last. The maximum time a Chapter 13 plan can run is 60 months. Many attorneys calculate the plan to run just short of 60 months in order to keep the plan payments as low as possible, even though the ACP only requires it to run 36 months.
When you file a Chapter 13 case, the Chapter 13 trustee is appointed to ensure that the plan complies with the law; to ensure that you are performing according to the terms of the plan; and, to receive, disburse, and account for the payments into the plan. The Chapter 13 341 Meeting of Creditors typically takes place about 30 days after the case is filed (you should receive notice of that hearing about 3 weeks in advance). At that time, the trustee will interview you regarding the proposed plan, the information contained in the statements and schedules you filed with the Court, and assess whether or not the plan should or should not be approved by the Court. Your attendance at this hearing is mandatory. One of our attorneys will be there with you. The trustee will swear you in, have you identify yourself for the record, and then ask you a brief series of questions. The questions will be similar to the ones your attorney asked you during the intake process. Creditors may appear and ask questions, as well – although this rarely happens. The hearing generally takes about 10-12 minutes from beginning to end. You will need to bring a government-issued picture id, separate government-issued proof of your social security number, your most recent pay stub, and a copy of your last filed, federal tax return. You should arrive at the courthouse 30 minutes early – (a) sometimes there can be a lengthy wait in the security line; and, (b) it will give you an opportunity to meet with our attorney and watch some of the other hearings beforehand. Please remember to leave your cell phone(s) at home or in your car – they will not be allowed in the courthouse.
Once the 341 Meeting is concluded, the trustee will mail you (and our firm) a list of any objections the trustee might have regarding your proposed plan. At the end of the document, the trustee will ask the Court to dismiss your case. Do not be alarmed. Your case has not been dismissed and we will have until the next hearing, the confirmation hearing, to resolve the objections. Most of these objections are easy to fix. And the Court will usually allow us additional time to fix any complicated ones. Creditors may file objections, too. So, if you receive any objections to the confirmation of your plan by either the trustee or a creditor, please call our office right away and make an appointment to meet with us to go over them.
The second hearing is the confirmation hearing. It usually is scheduled approximately 30 days after the 341 Meeting. In Gainesville, the confirmation hearing usually takes place in Courtroom 103, which is on the first floor of the federal courthouse. The Bankruptcy Judge presides over the confirmation hearing. This is the time when the Court either approves (confirms) the plan or denies confirmation. If the Court denies confirmation, it might either dismiss the case or allow us additional time to either amend the plan or otherwise resolve the outstanding objections. If there are no outstanding objections, you will not have to attend this hearing. We will try to let you know a day or two beforehand whether you need to attend. If we do not affirmatively tell you that you do not need to attend, you should plan to be at the hearing. Again, please be in the courtroom early, bring government-issued picture id, and leave your cell phones at home or in your car.
The order confirming the plan “binds” both you and your creditors to the provisions of the plan. In essence, it creates a new contract between your creditors and you which you all are required to honor. If you fail to timely make your payments, or to follow other provisions of your plan, either the trustee or your creditors may ask the Court to dismiss your case. Everyone understands that filing Chapter 13 is not the cure for all ills and that a lot of changes can occur – both positive and negative – during the 3 to 5 years that your case will be pending. Therefore, it is extremely important that you let us know if you find that you will not be able to make payments or take other actions required by your plan. There are ways to deal with these problems but it is always best to address them as soon as possible. For example, we can ask that your payments be temporarily suspended, that your plan be modified, or even that your case be converted to Chapter 7.
Once you have completed the payments under your plan, the Court will enter the discharge order. Before the Court will do so, however, you will have to certify to the Court that you have completed the second credit counseling course (which must be taken after your case is filed) and that you are current on all of your domestic support obligations which came due while your case was pending. The discharge order is a permanent injunction which prohibits your creditors (with some exceptions like mortgages, restitution, etc.), from attempting to collect from you or your property.