Filing for Chapter 13 bankruptcy?
Understand the basics of filing for Chapter 13 in Georgia.
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What does it mean to file for Chapter 13 bankruptcy, and how is it done?
Choosing to file for bankruptcy is a bold and intimidating step in your financial life. Understanding the differences between Chapter 7, Chapter 11 and Chapter 13 is an important first step. Knowing how the different types of bankruptcy work and will impact you is essential. Choosing the right filing can make a big difference in how the process is implemented and how your credit is impacted.
If you’re considering filing for Chapter 13 bankruptcy but aren’t sure whether or not it’s the right move, we invite you to talk with one of our knowledgeable legal experts—for free—to find out what the process is like and how your life will change. We specialize in bankruptcy filings in Atlanta and across Georgia. Our bankruptcy lawyers know the ins and outs of Chapter 13 petitions, and we can fight to secure the best possible outcome for you and your family.
Schedule your free consultation and learn about how filing for bankruptcy works in Georgia.
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What is Chapter 13 bankruptcy?
Another term commonly used to describe Chapter 13 bankruptcy is a “wage earner’s plan,” which allows individuals with a regular stream of income to put together a plan to repay all or a portion of their debts. Utilizing Chapter 13, a debtor creates and proposes a repayment plan in an effort to pay creditors in installments—usually over 3 to 5 years. While repayment is occurring, the law forbids creditors from initiating any collection efforts.
The length of time permitted to repay creditors is determined by the court based on the debtor’s yearly income. If the debtor’s annual income is above the applicable state median, the filer usually will have 5 years to pay creditors back, but if it’s below the state median the court may decide the plan must be fulfilled in 3 years.
What are the benefits of Chapter 13?
The primary advantage of filing for Chapter 13 bankruptcy is that it allows debtors a chance to protect their homes from foreclosure. By initiating a Chapter 13 claim, filers can stop foreclosure proceedings and have the opportunity to fix late mortgage payments over time. While Chapter 13 can shield your home from seizure, debtors must continue to make mortgage payments while going through their Chapter 13 plan.
A secondary advantage of Chapter 13 is that it allows filers to reschedule secured debts (such as an auto loan)—other than their mortgage on a primary residence—and extend the payments on those debts over the timeline of the Chapter 13 plan.
The third advantage of Chapter 13 is that it contains a special provision that protects third parties (co-signers) who are liable with the debtor on “consumer debts,” which are described as items purchased for individual or household consumption such as credit card debt, student loans or payday loans.
Lastly, filers won’t have any direct contact with their creditors while under Chapter 13 protection as going this route creates a sort of consolidated loan under which the debtor makes payments to a trustee who then allocates money to various creditors.
Who can file for Chapter 13 bankruptcy?
In the United States, any person—whether they are operating an unincorporated business or they are self-employed—is entitled to file for Chapter 13 protection so long as the filer’s secured debt totals less than $1,184,200 and their unsecured debts are less than $394,725. While these set limits can fluctuate based on changes to the consumer price index, the amounts are usually in that ballpark.
A person cannot file for Chapter 13—or any other bankruptcy chapter—if, during the prior 180 days, a previous bankruptcy petition was denied due to the filer’s inability to comply with court orders, if the case was voluntarily dismissed after creditors sought reprieve from the court to recover assets on which they held liens, or if the filer willfully failed to appear in court.
A court will not approve a Chapter 13 filing unless the debtor has sought and received credit counseling from an authorized credit counseling agency in either a group or individual setting. During these sessions, a debt management plan is created and must be submitted to the court during filing. There can be emergency exceptions to these rules on rare occasions.
How do I file a Chapter 13 bankruptcy claim?
A Chapter 13 case is initiated when a debtor (or their legal representative) files a petition at the bankruptcy court where the filer lives. The following documents must also be filed with the court at the same time:
- List of all liabilities and assets
- List of income and expenditures
- List of any signed contracts or leases
- General statement of filer’s fiscal affairs
- Proof (certificate) of completing credit counseling
- Proof of debt repayment plan created during credit counseling
- Proof of monthly payments from employers (if applicable)
- List of monthly net income and any expected raises or expenses following the bankruptcy filing
- Proof of student loans or any debt held by the state or federal government
- Most recent tax return, previous several years of tax returns, and any tax returns filed during bankruptcy
Beyond the above listings and proofs needed for filing, the following information is needed by the court to proceed with your Chapter 13 filing:
- List of all creditors (including amounts owed and nature of the claim)
- Amount, source and pay timeline of the filer’s income
- Full list of all property owned by the filer (cars, land, homes, valuables, etc.)
- Detailed list of filer’s monthly living expenses (food, utilities, shelter, transportation, clothing, taxes, medicine, etc.)
If the individual who is filing for bankruptcy is married, the spouse must also gather the above information for the petition, even if that spouse is not filing for bankruptcy. The information is needed so that the court and trustee assigned to the case can appraise the entire household’s financial situation.
How much does it cost to file for Chapter 13 bankruptcy?
Once the required documents are compiled and readied for submission to the court, a $235 filing fee and $75 administrative fee must be paid. These fees are sometimes allowed to be paid in installments, but no more than 4.
If a husband and wife are filing for bankruptcy jointly, only one set of fees are charged. Failure to pay these fees could result in your case being dismissed.
What happens during a Chapter 13 proceeding?
Filing Chapter 13 comes with a special provision that protects co-debtors. Unless otherwise stated and authorized by the bankruptcy court, a creditor cannot try to collect consumer debt from anyone who is liable along with the filer.
Once a person petitions for Chapter 13, a bankruptcy administrator (also called a “trustee”) is assigned to the case and that person evaluates the situation, has the authority to disburse payments to creditors and collects money from the debtor.
About 3 to 5 weeks after the petition is accepted by the court, the assigned case trustee will convene a meeting of creditors. This meeting must be convened within 60 days of the debtor filing for Chapter 13. During this gathering, the trustee swears in the debtor under oath, and both the creditors and trustees are allowed to ask questions.
The debtor is required to attend this meeting and answer the questions truthfully as they pertain to their financial situation and property. If the petition for Chapter 13 is filed jointly by both a husband and wife, they both must attend the meeting and give truthful answers. Following this meeting, the trustee will tell the court whether the case contains any abuses of the “means test” (as detailed here or here).
Debtors are encouraged to cooperate with the trustee assigned to their case. Their role in the questioning is mainly to make certain the filer is aware of the consequences of a successful bankruptcy, such as its effects on credit ratings and the impact on the filer’s future ability to seek alternative bankruptcies. Bankruptcy judges are not permitted to attend the creditor meeting.
In a Chapter 13 filing, creditors with unsecured debt must file their claim with the court within 90 days after the first creditors’ meeting for a chance at getting distributions from the bankruptcy estate. When the motion for bankruptcy is granted, the case becomes an “estate,” and that estate becomes the temporary owner of the debtor’s property. It’s from this estate that the filer’s creditors are paid from as the property is liquidated.
This liquidation of property is the job of the trustee. There are 6 levels of claims and each class is paid in full before the next level receives anything. This is a complex part of the bankruptcy filing and if there is any money or property left over at the end, it may be left to the debtor.
The role of the case trustee is to administer the case and liquidate the filer’s non-exempt assets. If it is discovered that the debtor has no exempt assets, the trustee normally files a “no assets” report with the court and creditors get nothing. However, if there are assets, creditors must file a claim with the court within 90 days following the meeting of creditors to lock in their chances of securing some monetary payout.
Following the meeting of creditors, the trustee, debtor and any creditors who want to attend can go to the court for a hearing on the debtor’s Chapter 13 repayment plan.
Unless otherwise stated by the bankruptcy court, the debtor is required to submit a repayment plan with their petition (or within 14 days of it) for court approval so that payments can be made to the trustee regularly (bi-weekly/monthly). It’s up to the trustee to distribute the funds to various creditors—some of which may not get the whole sum loaned back.
Priority claims are given special status by bankruptcy law, and examples of these are most taxes and fees involved with filing for bankruptcy.
Secured claims are those where the creditor has the right to take back certain property if the debtor cannot pay the outstanding debt.
Unsecured claims are those where the creditor does not have special rights to collect on certain property the debtor currently owns.
A filer’s bankruptcy repayment plan must have a clear path to which priority claims are paid back in full unless that priority creditor agrees to modify the repayment plan. These situations sometimes occur if the debtor has some domestic (child) support obligation.
A bankruptcy court should hold a confirmation hearing on the feasibility of the debtor repaying creditors no later than 45 days after the creditors’ meeting. Creditors are given 28 days’ notice of the hearing and can lodge an objection on the confirmation at that time. Once the many obligations of Chapter 13 are met, the debtor receives a “discharge” for any remaining debt in the case, which usually signals the end of Chapter 13 bankruptcy.
It’s important to note that a court could revoke a Chapter 13 discharge at the urging of a creditor or the trustee assigned to the case if fraud was uncovered on behalf of the debtor.
Can I convert my bankruptcy claim to a Chapter 13?
The bankruptcy code allows a debtor to convert a Chapter 7 to a Chapter 11, 12 or 13 as long as the debtor is eligible—and so long as the case hadn’t previously been converted to Chapter 7 from another Chapter. Basically, a debtor cannot bounce back and forth from 1 chapter to another.
When should I consult a Chapter 13 bankruptcy lawyer?
If you or a loved one is considering filing for Chapter 13 bankruptcy, we strongly recommend that the filer starts a dialogue with a knowledgeable bankruptcy attorney near them. Chapter 13 has a wide variety of nuances and details that only an expert in bankruptcy law can help navigate. The right attorney can catch mistakes, offer alternatives within the law and make the experience substantially smoother.
If you are looking to file for bankruptcy in Georgia, let a Gerber & Holder attorney be your guide. We are standing by to offer a helping hand so that you or your loved one can land on your “financial” feet when it’s all said and done.
Don’t delay any longer.
CONTACT US TODAY TO SCHEDULE YOUR FREE CONSULTATION.
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