Who is eligible to file under chapter 13?
March 28, 2008
Any natural person may file under chapter 13 if the person
- resides in, does business in, or owns property in the United States,
- has regular income,
- has unsecured debts of less than $250,000,
- has secured debts of less than $750,000,
- is not a stockbroker or a commodity broker, and
- has not been a debtor in another bankruptcy case that was dismissed within the last 180 days on certain technical grounds. A person meeting the above requirements may file under chapter 13 regardless of when he or she last filed a bankruptcy case or received a bankruptcy discharge. Corporations, partnerships and limited liability companies may not file under chapter 13.
What if the debtor incurs new debts or needs credit during a chapter 13 case?
March 28, 2008
Only two types of credit obligations or debts incurred after the filing of the case may be included in a chapter 13 plan. These are: (1) debts for taxes that become payable while the case is pending, and (2) consumer debts arising after the filing of the case that are for property or services necessary for the debtor’s performance under the plan and that are approved in advance by the chapter 13 trustee. All other debts or credit obligations incurred after the case is filed must be paid by the debtor outside the plan. Some courts issue an order prohibiting the debtor from incurring new debts during the case unless they are approved in advance by the chapter 13 trustee. Therefore, the approval of the chapter 13 trustee should be obtained before incurring credit or new debts after the case has been filed. The incurrence of regular debts, such as debts for telephone service and utilities, do not require the trustee’s approval.
How are cosigned or guaranteed debts handled under chapter 13?
March 28, 2008
If a cosigned or guaranteed consumer debt is being paid in full under a chapter 13 plan, the creditor may not collect the debt from the cosigner or guarantors. However, if a consumer debt is not being paid in full under the plan, the creditor may collect the unpaid portion of the debt from the cosigner or guarantors A consumer debt is a nonbusiness debt. Creditors may collect business debts from cosigners or guarantors even if the debts are to be paid in full under the debtor’s plan.
What if the debtor is temporarily unable to make the chapter 13 payments?
March 28, 2008
If the debtor is temporarily out of work, injured, or otherwise unable to make the payments required under a chapter 13 plan, the plan can usually be modified so as to enable the debtor to resume the payments when he or she is able to do so. If it appears that the debtor’s inability to make the required payments continue indefinitely or for an extended period, the case may be dismissed or converted to chapter 7.
How are secured creditors dealt with under chapter 13?
March 28, 2008
There are four methods of dealing with secured creditors under chapter 13:
- The creditor may accept the debtor’s proposed plan,
- The creditor may retain its lien and be paid the full amount of its secured claim under the plan,
- Debtor may surrender the collateral to the creditor, or
- The creditor may be paid or dealt with outside of the plan.
It is important to understand that a creditor has a secured claim only to the extent of the value of its security, which cannot exceed the value of the property securing the claim. Thus, a creditor with a mortgage on, say, a $1500 automobile, cannot have a secured claim for more than $1500 regardless of how much is owed to the creditor. If the debtor is in default to a secured creditor, the default must be cured (made current) within a reasonable time. Also, interest must be paid on secured claims.
How are the claims of unfiled creditors handled under chapter 13?
March 28, 2008
Unsecured creditors must file their claims with the bankruptcy court within 90 days after the first date set for the meeting of creditors in order for their claims to be allowed. Unsecured creditors who fail to file claims within that period are barred from doing so, and upon completion of the plan their claims will be discharged. The debtor may file a claim on behalf of a creditor, if desired. After the claims have been filed, the debtor may file objections to any claims that he or she disputes. When the claims have been approved by the court, the chapter 13 trustee begins paying unsecured creditors as provided for in the chapter 13 plan. Payments to secured creditors, priority creditors, and special classes of unsecured creditors may begin earlier, if desired.
Is it necessary for all creditors to approve a chapter 13 plan?
March 28, 2008
NO. To become effective, a chapter 13 plan must be approved by the court, not by the creditors. The court cannot approve a plan unless secured creditors are dealt with in the manner described in the answer to Question 16. Also, unsecured creditors are permitted to file objections to the debtor’s plan, and these objections must be ruled on by the court before it can approve the debtor’s chapter 13 plan.
What if the court does not approve a filed chapter 13 plan?
March 28, 2008
If the court will not approve the plan proposed by a debtor, the debtor may modify the plan and seek court approval of the modified plan. If the court does not approve a plan, it will usually give its reasons for refusing to do so, and the plan may then be appropriately modified so as become acceptable to the court. A debtor who does not wish to modify a proposed plan may either convert the plan to chapter 7 or dismiss the case.
How long does a chapter 13 plan last?
March 28, 2008
A chapter 13 plan must last for three years, unless all debts can be paid off in full in less time. However, a chapter 13 plan can last for as long as five years, if necessary.
When does a debtor have to appear in court in a chapter 13 case?
March 28, 2008
Most debtors have to appear in court at least twice: once for a hearing called the meeting of creditors, and once for a hearing on the confirmation of the debtor’s chapter 13 plan. The meeting of creditors is usually held about a month after the case is filed. The confirmation hearing may be held on the same day as the meeting of creditors or at a later date The debtor’s testimony should not be lengthy at either hearing, however. If difficulties or unusual circumstances arise during the course of a case, additional court appearances may be necessary.