Chapter 13: Individual Debt Adjustment – A Deal with your Creditors
Most people file Chapter 13 bankruptcy to protect assets that might not be fully protected in Chapter 7 bankruptcy. The most common reasons people file Chapter 13 are as follows:
- To catch up on delinquent mortgage payments or real estate taxes. In Chapter 13, a debtor can pay the delinquent amounts over a period of 36-60 months and protect their property from foreclosure.
- To restructure automobile loans with high payments, high interest rates, or payoff balances that exceed the value of the vehicle.
- To pay back income taxes, child support arrears, and other priority debts without any additional interest or penalties.
- To protect assets that might be subject to auction or sale in Chapter 7. By paying back creditors a percentage of their debt through a Chapter 13 plan, the non-exempt assets are kept permanently beyond the reach of your creditors. The exact repayment amount is determined by a variety of factors, including the value of assets and monthly income.
- To obtain a partial discharge of unsecured debts (such as credit cards) when a person’s income is too high to qualify for Chapter 7.
How does Chapter 13 Work?
The debtor begins by filing a petition with the bankruptcy court in their home district. As with a Chapter 7 filing, the debtor must file with the petition schedules of assets and liabilities, current income and expenditures, executory contracts and unexpired leases. A schedule of exempt assets is also filed.
Once the Chapter 13 plan petition is filed, most legal actions are “stayed”, and most creditors cannot start or continue lawsuits, foreclose on your home, garnishee wages, or even make telephone calls demanding payment. (Creditors are notified of the filing by the court clerk). This “stay” allows a debtor who is behind on their mortgage payments on their principal residence to cure any defaults by bringing the payments current over a reasonable time period.
The plan of repayment must be filed with the initial petition, or no later than 15 days thereafter. A meeting of creditors is held in all cases, generally 20 to 50 days after the petition is filed. The debtor must attend the meeting, and the creditors may question the debtor on their assets and financial situation. A confirmation hearing will then be held in court, and the bankruptcy judge will determine if the plan is feasible, and meets all Bankruptcy Code standards. Creditors are notified of the hearing, and they may object to confirmation.
How are my creditors repaid?
Depending on you specific financial situation you may repay your unsecured creditors (such as credit cards, medical bills, collection account, ect…) at a rate less than 100%. Once you consult with an attorney they will be able to tell you what percentage plan you qualify for. You may remain in a Chapter 13 bankruptcy for a maximum of 5 years. Your attorney will determine your repayment amount each month. Your creditors are broken into three catergories:
- Secured creditors: These are creditors such as your mortgage company and car company. Their loan is secured with your property. The claims are paid first.
- Priority creditors: These are creditors such as the IRS, State of Georgia, and a Child Support Agency. These debts must be reapid but after the secured claims.
- General unsecured claims: These are claims such as credit card bills, medical bills, collection account and personal loans. These claims are typically the last group of creditors to be paid through your case.
Once the trustee recieves your payment every month he or she will then send each creditor who has filed a claim their share of the money.
What is a proof of claim and why must my creditor’s file one with the court?
A proof of claim is a legal document filed by a creditor which states the amount owed to them. Your creditors in your case only have a certain amount of time to file these claims with the court. If they miss the deadline they do not have to be paid through your case and the creditor cannot take any action against you. If you do not agree with a claim that has been filed in your case please speak to an attorney AT ONCE so that the attorney can file an objection to that creditor’s claim. Please note that you will have to provide written documentation as to the correct amount owed otherwise the claim will be allowed.