Chapter 13 FAQ
Under Federal law, all persons are entitled to receive a free copy of their credit report from each of the three major credit reporting bureaus on an annual basis. We recommend that all prospective bankruptcy clients provide us with a copy of their credit report. You may order your free credit report at http://www.annualcreditreport.com/.
Frequently Asked Questions About Chapter 13 Bankruptcy
What is a chapter 13 bankruptcy case and how does it work?
A chapter 13 bankruptcy case is a proceeding under federal law in which the debtor seeks relief under chapter 13 of the U.S. Bankruptcy Code. Chapter 13 bankruptcy often provides a solution for people who have faced short-term financial setbacks like job loss, illness, or large unexpected expenses. Chapter 13 allows a person to repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. A person who files a chapter 13 case is called a debtor. In a chapter 13 case, the debtor must submit to the court a plan for the repayment of all or a portion of his or her debts. The plan must be approved by the court to become effective. If the court approves the debtor’s plan, most creditors will be prohibited from collecting their claims from the debtor. The debtor must make regular payments to a person called the chapter 13 trustee, who collects the money paid by the debtor and disburses it to creditors in the manner provided for in the plan. Upon completion of the payments called for in the plan, the debtor is released from liability for the remainder of his or her dischargeable debts.
When is a chapter 13 case preferable to a chapter 7 case?
Chapter 13 is usually preferable for a person who – (1) wishes to repay all or most of his or her unsecured debts and has the income with which to do so within a reasonable time, (2) has valuable nonexempt property or has valuable exempt property securing debts, such as a residence or auto, either of which would be lost in a chapter 7 case, (3) is not eligible for a chapter 7 discharge, (4) has one or more substantial debts that are dischargeable under chapter 13 but not under chapter 7, or (5) has sufficient assets with which to repay most debts, but needs temporary relief from creditors in order to do so.
Many people looking to stop mortgage foreclosure or avoid repossession of a car choose Chapter 13 bankruptcy, because it combines the automatic stay with the ability to catch up past due payments over a period of three to five years while keeping current payments up to date.
How does a chapter 13 case differ from a chapter 7 case?
The basic difference between a chapter 7 case and a chapter 13 case is that in a chapter 7 case, the debtor’s nonexempt property (if any exists) is liquidated to pay as much possible of the debtor’s debts, while in chapter 13 cases, a portion of the debtor’s future income is used to pay as much of the debtor’s debts as is feasible under the debtor’s circumstances. As a practical matter, in a chapter 7 case, the debtor loses all or most of his or her nonexempt property and receives a chapter 7 discharge, which releases the debtor from liability for most debts. Ina chapter 13 case, the debtor usually retains his or her nonexempt property, but must pay off as much of his or her debts as the court deems feasible and receives a chapter 13 discharge, which is slightly broader than a chapter 7 discharge and releases the debtor from liability for a few types of debts that are not dischargeable under chapter 7. However, a chapter 13 case normally lasts much longer than a chapter 7 case.
How does a chapter 13 case differ from a private debt consolidation service?
In a chapter 13 case, the bankruptcy court can provide relief to the debtor that a private debt consolidation service cannot provide. For example, the court has authority to prohibit creditors from attaching or foreclosing on the debtor’s property, to force unsecured creditors to accept a chapter 13 plan that pays only a portion of their claims, and to discharge a debtor from the unpaid portions of those claims. Private debt consolidation services have none of these powers.
IMPORTANT INFORMATION ABOUT BANKRUPTCY ASSISTANCE SERVICES FROM AN ATTORNEY OR BANKRUPTCY PETITION PREPARER
If you decide to seek bankruptcy relief, you can represent yourself, you can hire an attorney to represent you, or you can get help in some localities from a bankruptcy petition preparer who is not an attorney. THE LAW REQUIRES AN ATTORNEY OR BANKRUPTCY PETITION PREPARER TO GIVE YOU A WRITTEN CONTRACT SPECIFYING WHAT THE ATTORNEY OR BANKRUPTCY PETITION PREPARER WILL DO FOR YOU AND HOW MUCH IT WILL COST. Ask to see the contract before you hire anyone.
The following information helps you understand what must be done in a routine bankruptcy case to help you evaluate how much service you need. Although bankruptcy can be complex, many cases are routine.
Before filing a bankruptcy case, either you or your attorney should analyze your eligibility for different forms of debt relief available under the Bankruptcy Code and which form of relief is most likely to be beneficial for you. Be sure you understand the relief you can obtain and its limitations. To file a bankruptcy case, documents called a Petition, Schedules and Statement of Financial Affairs, as well as in some cases a Statement of Intention need to be prepared correctly and filed with the bankruptcy court. You will have to pay a filing fee to the bankruptcy court. Once your case starts, you will have to attend the required first meeting of creditors where you may be questioned by a court official called a ‘trustee’ and by creditors.
If you choose to file a chapter 7 case, you may be asked by a creditor to reaffirm a debt. You may want help deciding whether to do so. A creditor is not permitted to coerce you into reaffirming your debts.
If you choose to file a chapter 13 case in which you repay your creditors what you can afford over 3 to 5 years, you may also want help with preparing your chapter 13 plan and with the confirmation hearing on your plan which will be before a bankruptcy judge.
If you select another type of relief under the Bankruptcy Code other than chapter 7 or chapter 13, you will want to find out what should be done from someone familiar with that type of relief.
Your bankruptcy case may also involve litigation. You are generally permitted to represent yourself in litigation in bankruptcy court, but only attorneys, not bankruptcy petition preparers, can give you legal advice.