Chapter 13 Bankruptcy
Introduction
Chapter 13 is only available to individuals with regular income from
any source (including sole proprietorships), not just wages. Partnerships and
corporations are not eligible for chapter 13 relief. The purpose of chapter 13
is to help individual debtors reorganize their finances by making payments to
creditors through a Chapter 13 plan for a at least three years, but no more than
five years. 11 U.S.C. § 1322(d). A condition precedent to qualifying for Chapter
13 relief is that no debtor may have unsecured debts in excess of $307,675, and
secured debts in excess of $922,975. 11 U.S.C. § 109(e)
Chapter 13 Process
A Chapter 13 bankruptcy case begins with
the filing a petition for relief pursuant to the United States Bankruptcy Code
(the “bankruptcy petition”). 11 U.S.C. § 301(a). The bankruptcy petition is
filed with the Bankruptcy Court in the district where the individual debtor
lives (In your case the Northern District of Ohio). The debtor, in addition to
the bankruptcy petition, must also file schedules listing all assets and all
liabilities, an income and expense report, a statement of financial affairs and
a chapter 13 plan. Federal Rules of Bankruptcy Procedure 1007(b), 3015(b).
Married persons may file a joint bankruptcy petition or one or both spouses may
file individual bankruptcy petitions. 11 U.S.C. § 302(a). Joint petitioners pay
only one filing fee. If only one spouse files, the income and expenses of the
non-filing spouse must be included in the debtor’s schedules, which numbers are
used to determine the amount of the Chapter 13 plan payment.
Upon the commencement of the Chapter 13 bankruptcy case, a Chapter 13
trustee is appointed to administer the case. The initial role of the Chapter 13
trustee is to ensure the Chapter 13 plan is proper and proposed in good faith.
Once the Chapter 13 plan is confirmed, the Chapter 13 trustee collects all plan
payments from the debtor and makes distributions to the debtor’s creditors
pursuant to the plan.
The Chapter 13 trustee conducts a meeting of creditors (341(a)
hearing), and the debtor is examined under oath concerning the schedules,
statement of financial affairs and the Chapter 13 plan. Creditors may attend the
meeting of creditors and ask questions. Debtors (both husband and wife if
jointly filed) must attend the meeting. Problems with the plan are typically
resolved during or shortly after the creditors’ meeting. If there are no formal
plan objections, the debtor may proceed towards confirmation
The Chapter 13 Plan
Chapter 13 is the ideal vehicle for a debtor facing foreclosure. As
indicated supra, the filing of a Chapter 13 case results in an “automatic
stay” which can stop a foreclosure sale. By commencing a case under Chapter 13 a
debtor may be able to permanently stop any foreclosure sale by providing to cure
any defaults on the mortgage(s) within a reasonable period of time (36-60
months) in the plan. 11 U.S.C. § 1322(b).
The debtor is required to file a Chapter 13 plan 15 days after the
filing of the bankruptcy petition. Federal Rules of Bankruptcy Procedure
3015(b). The debtor must commit to pay into the plan all projected “disposable
income” for the duration of the plan. 11 U.S.C. § 1322(a). Disposable income is
defined as income not reasonably necessary for the maintenance or support of the
debtor or dependents. If the debtor operates a business, disposable income is
defined as excluding those amounts which are necessary for the payment of
ordinary operating expenses. 11 U.S.C. § 1325(b)(2).
As stated above, the Chapter 13 plan dictates which creditors are
paid and how much of their allowed claim they are paid. While secured creditors
are specifically provided for in a Chapter 13 plan, unsecured creditors are not.
Unsecured creditors will only receive a distribution from the Chapter 13 plan if
a proof of claim is timely filed with the bankruptcy court. Unsecured creditors
have to file their proof of claim within 90 days after the first date set for
the meeting of creditors. Federal Rules of Bankruptcy Procedure 3002(c). A
governmental unit, however, may file a proof of claim until the expiration of
180 days from the date the case is filed. 11 U.S.C. § 502(b)(9).
The Bankruptcy Code affords both the Chapter 13 trustee and the
debtor’s creditors the opportunity to object to the confirmation of the Chapter
13 plan. If the trustee or a creditor objects to confirmation of the Chapter 13
plan, a hearing is scheduled before the Bankruptcy Court. There are a number of
objections that can be made by trustees and creditors, but the most frequent
objections are: (1) the total plan payments are less than creditors would
receive if the debtor's assets were liquidated under Chapter 7 of the Bankruptcy
Code; or (2) the debtor’s plan does not commit all of the debtor’s projected net
disposable income for the minimum three-year period. If the objection is
sustained and the plan is not confirmed, the debtor may attempt to modify the
plan, convert the case to a Chapter 7, or allow the bankruptcy case to be
dismissed.
On occasion, changed circumstances will affect a debtor's ability to
make plan payments, or a debtor may have inadvertently omitted a creditor. In
such instances, the plan may be modified either before or after confirmation. 11
U.S.C. §§ 1323, 1329. A motion to modify the Chapter 13 plan may be made by the
debtor, an unsecured creditor or the trustee. 11 U.S.C. § 1329(a).
The provisions of a confirmed plan are binding on all interested
parties. Creditors must refrain from any collection activities for the duration
of the plan. The debtor must continue to make the plan payments in a timely
fashion for the life of the plan. A failure of either party to the plan
(creditor or debtor) will result in negative consequences. For the debtor, a
breach of the plan might lead to dismissal or a motion for relief from the
automatic stay, which, if granted will allow a creditor to go forward with
collection efforts including foreclosure or repossession.
The Discharge
The Chapter 13 debtor is entitled to a discharge upon successful
completion of all payments. The discharge releases the debtor from all claims
provided for in the plan or disallowed by the court. It is the creditor’s duty
to file a claim in the case. Those creditors who were provided for in full or in
part under the chapter 13 plan, even if not paid because they failed to file a
claim, may not initiate or continue legal action to collect the discharged
obligations.
In return for adhering to the requirements of a repayment plan for
three to five years, the debtor receives a broader discharge under Chapter 13
than in a Chapter 7 case. Generally, the debtor is discharged from all debts
provided for by the plan or disallowed, except certain long term obligations
(such as a home mortgage), debts for alimony or child support, debts for most
student loans, debts arising from death or personal injury caused by driving
while intoxicated or under the influence of drugs, and debts for restitution or
a criminal fine. To the extent that these types of debts are not fully paid
pursuant to the Chapter 13 plan, the debtor will still be responsible for these
debts after the Chapter 13 case has successfully concluded.
|
