Chapter 13
1. Overview
Chapter 13 bankruptcy is a repayment plan that you submit to the bankruptcy court. It describes how you intend to pay off your debts, over a 3-5 year period. Chapter 13 Bankruptcy is designed to give you a fresh start and was specifically written for individuals who desire to pay their debts but, due to a loss of job, disability, or other personal crisis, can no longer afford to make their regular monthly payments and need relief from high interest rates, late fees and the penalties that keep piling up each month.
• Gather the following information: creditor's names, addresses and
amount of debt; source, amount and frequency of your income; a list of all
your property and detailed list of your monthly living expenses.
• Fill out the required bankruptcy forms (also called petition or case-file)
• File your repayment plan issues an "automatic stay" that stops all collection actions and prohibits creditors from initiating/continuing lawsuits or wage garnishment, even telephone calls demanding payment must stop!
• Usually about 20 to 40 days after filing your petition, the court will notify you of the 341 meeting which you must attend and generally takes only 10-15 minutes. The purpose of this meeting is for creditors (if any even show up) to question your claim that you are unable to pay your debts. Creditors want to know if you could pay at least 50 cents on the dollar, and if not, they won't waste their time objecting to the discharge.
• The bankruptcy judge officially approves your plan.
• Begin making payments within 30 days and continue until completing your plan.
• After completing all payments, you'll receive a discharge (legal document releasing you your debts)
• With discharge notice in hand, you are officially released from having personal liability for any discharged
debt. (creditors cannot take action against you or your exempted property)
2. Foreclosure in Chapter 13 you are facing foreclosure and cannot work out a deal or other alternative with the lender,
bankruptcy may help.If you get behind on your mortgage payments, a lender may take steps to foreclose --that is, enforce the terms of the loan by selling the house at a public auction and taking payment of your loan out of the
auction. This won’t happen overnight. The foreclosure process typically starts after you fall behind on your payments for at least two months, and often three or four. That gives you time to try some alternate measures, such as loan forbearance, a short sale, or a deed in lieu of foreclosure.
3. The Automatic Stay: Delaying Foreclosure
When you file either a Chapter 13 or Chapter 7 bankruptcy, the court automatically issues an
order (called the Order for Relief) that includes a wonderful thing known as the
“automatic stay.” The automatic stay directs your creditors to cease their
collection activities immediately, no excuses. If your home is scheduled for a
foreclosure sale, the sale will be legally postponed while the bankruptcy is
pending—typically for three to four months. However, there are two exceptions to
this general rule:
• Motion to lift the stay.
If the lender obtains the bankruptcy court’s permission to proceed with the sale (by
filing a “motion to lift the stay”), you may not get the full three to four
months. But even then, the bankruptcy will typically postpone the sale by at
least two months, or even more if the lender is slow in pursuing the
motion to lift the automatic stay.
• Foreclosure notice already
filed. Unfortunately, bankruptcy’s automatic stay won’t stop the clock on the
advance notice that most states require before a foreclosure sale can be held
(or a motion to lift the stay can be filed). For example, before selling a
home in California , a lender has to give the owner at least three months’
notice. If you receive a three-month notice of default, and
then file for bankruptcy after two months have passed, the three-month period would elapse
after you’d been in bankruptcy for only one month. At that time the lender
could file a motion to lift the stay and ask the court for permission to
schedule the foreclosure sale.
How Chapter 13 Bankruptcy Can Help
• Many people will do whatever they can to stay in their home for
the indefinite future. If that
describes you, and you’re behind on your
mortgage payments with no feasible way to get current, the only way to keep
your home is to file a Chapter 13 bankruptcy.
How Chapter 13 works regarding to Mortgage Arrearage?
• Chapter 13 bankruptcy lets you pay off
the “arrearage” (late, unpaid payments) over the length of a repayment plan you
propose—five years in some cases. But you’ll need enough income to at least meet
your current mortgage payment at the same time you’re paying off the arrearage.
Assuming you make all the required payments up to the end of the repayment plan,
you’ll avoid foreclosure and keep your
home.
2nd and 3rd mortgage payments.
Chapter 13 may also help you eliminate the payments on your second or third mortgage. That’s
because, if your first mortgage is secured by the entire value of your home (which is
possible if the home has dropped in value), you may no longer have any equity
with which to secure the later mortgages. That allows the Chapter 13 court to
“strip off” the second and third mortgages and recategorize them as unsecured debt – which, under Chapter 13, takes last priority and often does not have to be paid back at all. For more information on Chapter 13 bankruptcy,
see Nolo’s.
5. Repayment Plan
Unless the court grants an
extension, under Chapter 13 a bankruptcy debtor must file a repayment plan with
the bankruptcy petition, or within 15 days after the petition is filed. A plan
must be submitted for court approval and must provide for payments of fixed
amounts to the trustee on a regular basis, typically biweekly or monthly. The
trustee then distributes the funds to creditors according to the terms of the
plan, which may offer creditors less than full payment on their claims.
6. Creditors' Claims and Repayment under the Plan
There are three types of claims:
A. Priority
B. Secured
C. Unsecured
Priority claims are those granted special status by the
bankruptcy law, such as most taxes and the costs of bankruptcy proceeding.
Secured claims are those for which the creditor has the right take back certain
property (i.e., the collateral) if the debtor does not pay the underlying debt.
In contrast to secured claims, unsecured claims are generally those for
which the creditor has no special rights to collect against particular property
owned by the debtor. The plan must pay priority claims in full
unless a particular priority creditor agrees to different treatment of the claim
or, in the case of a domestic support obligation, unless the debtor contributes
all "disposable income" - discussed below - to a five-year plan.
"Secured" Claims Under the Repayment Plan
If the debtor wants to keep the collateral securing a particular claim, the plan must
provide that the holder of the secured claim receive at least the value of the
collateral. If the obligation underlying the secured claim was used the buy the
collateral (e.g., a car loan), and the debt was incurred within certain time frames before the bankruptcy filing, the plan must provide for full payment of the debt, not just the value of the collateral (which maybe less due to
depreciation). Payments to certain secured creditors (i.e., the home mortgage
lender), may be made over the original loan repayment schedule (which may be longer than the plan) so long as any arrearage is made up during the plan. The debtor should consult an attorney to determine the proper treatment of secured claims in the plan.
7.Discharg chapter
13 debtor is entitled to a discharge upon completion of all payments under the
chapter 13 plan so long as the debtor: (1) certifies (if applicable) that
all domestic support obligations that came due prior to making such
certification have been paid; (2) has not received a discharge in a prior case
filed within a certain time frame (two years for prior chapter 13 cases and
four years for prior chapter 7, 11 and 12 cases); and (3) has completed an
approved course in financial management. The court will not enter the
discharge, however, until it determines, after notice and a hearing, that there
is no reason to believe there is any pending proceeding that might give
rise to a limitation on the debtor's homestead exemption.
Effect of the Discharge
The discharge releases the debtor from all debts provided for by the plan or disallowed, with
limited exceptions. Creditors provided for in full or in part under the chapter 13 plan
may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations. As a general rule, the discharge releases the debtor from all debts provided for by the plan or disallowed, with the
exception of certain debts referenced in the Bankruptcy Code. Debts not discharged in chapter 13 include certain long term obligations (such as a home mortgage), debts for alimony or child support, certain taxes, debts for most
government funded or guaranteed educational loans or benefit over payments, 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
included in a sentence on the debtor's conviction of a crime. To the extent that they are not fully paid under the chapter 13 plan, the debtor will still be responsible for these debts after the bankruptcy case has
concluded. Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for restitution or damages awarded in a civil case for willful or malicious actions
by the debtor that cause personal injury or death to a person will be discharged unless a creditor timely files and prevails in an action to have such debts declared non-dischargeable.
Chapter 13 bankruptcy is a repayment plan that you submit to the bankruptcy court. It describes how you intend to pay off your debts, over a 3-5 year period. Chapter 13 Bankruptcy is designed to give you a fresh start and was specifically written for individuals who desire to pay their debts but, due to a loss of job, disability, or other personal crisis, can no longer afford to make their regular monthly payments and need relief from high interest rates, late fees and the penalties that keep piling up each month.
• Gather the following information: creditor's names, addresses and
amount of debt; source, amount and frequency of your income; a list of all
your property and detailed list of your monthly living expenses.
• Fill out the required bankruptcy forms (also called petition or case-file)
• File your repayment plan issues an "automatic stay" that stops all collection actions and prohibits creditors from initiating/continuing lawsuits or wage garnishment, even telephone calls demanding payment must stop!
• Usually about 20 to 40 days after filing your petition, the court will notify you of the 341 meeting which you must attend and generally takes only 10-15 minutes. The purpose of this meeting is for creditors (if any even show up) to question your claim that you are unable to pay your debts. Creditors want to know if you could pay at least 50 cents on the dollar, and if not, they won't waste their time objecting to the discharge.
• The bankruptcy judge officially approves your plan.
• Begin making payments within 30 days and continue until completing your plan.
• After completing all payments, you'll receive a discharge (legal document releasing you your debts)
• With discharge notice in hand, you are officially released from having personal liability for any discharged
debt. (creditors cannot take action against you or your exempted property)
2. Foreclosure in Chapter 13 you are facing foreclosure and cannot work out a deal or other alternative with the lender,
bankruptcy may help.If you get behind on your mortgage payments, a lender may take steps to foreclose --that is, enforce the terms of the loan by selling the house at a public auction and taking payment of your loan out of the
auction. This won’t happen overnight. The foreclosure process typically starts after you fall behind on your payments for at least two months, and often three or four. That gives you time to try some alternate measures, such as loan forbearance, a short sale, or a deed in lieu of foreclosure.
3. The Automatic Stay: Delaying Foreclosure
When you file either a Chapter 13 or Chapter 7 bankruptcy, the court automatically issues an
order (called the Order for Relief) that includes a wonderful thing known as the
“automatic stay.” The automatic stay directs your creditors to cease their
collection activities immediately, no excuses. If your home is scheduled for a
foreclosure sale, the sale will be legally postponed while the bankruptcy is
pending—typically for three to four months. However, there are two exceptions to
this general rule:
• Motion to lift the stay.
If the lender obtains the bankruptcy court’s permission to proceed with the sale (by
filing a “motion to lift the stay”), you may not get the full three to four
months. But even then, the bankruptcy will typically postpone the sale by at
least two months, or even more if the lender is slow in pursuing the
motion to lift the automatic stay.
• Foreclosure notice already
filed. Unfortunately, bankruptcy’s automatic stay won’t stop the clock on the
advance notice that most states require before a foreclosure sale can be held
(or a motion to lift the stay can be filed). For example, before selling a
home in California , a lender has to give the owner at least three months’
notice. If you receive a three-month notice of default, and
then file for bankruptcy after two months have passed, the three-month period would elapse
after you’d been in bankruptcy for only one month. At that time the lender
could file a motion to lift the stay and ask the court for permission to
schedule the foreclosure sale.
How Chapter 13 Bankruptcy Can Help
• Many people will do whatever they can to stay in their home for
the indefinite future. If that
describes you, and you’re behind on your
mortgage payments with no feasible way to get current, the only way to keep
your home is to file a Chapter 13 bankruptcy.
How Chapter 13 works regarding to Mortgage Arrearage?
• Chapter 13 bankruptcy lets you pay off
the “arrearage” (late, unpaid payments) over the length of a repayment plan you
propose—five years in some cases. But you’ll need enough income to at least meet
your current mortgage payment at the same time you’re paying off the arrearage.
Assuming you make all the required payments up to the end of the repayment plan,
you’ll avoid foreclosure and keep your
home.
2nd and 3rd mortgage payments.
Chapter 13 may also help you eliminate the payments on your second or third mortgage. That’s
because, if your first mortgage is secured by the entire value of your home (which is
possible if the home has dropped in value), you may no longer have any equity
with which to secure the later mortgages. That allows the Chapter 13 court to
“strip off” the second and third mortgages and recategorize them as unsecured debt – which, under Chapter 13, takes last priority and often does not have to be paid back at all. For more information on Chapter 13 bankruptcy,
see Nolo’s.
5. Repayment Plan
Unless the court grants an
extension, under Chapter 13 a bankruptcy debtor must file a repayment plan with
the bankruptcy petition, or within 15 days after the petition is filed. A plan
must be submitted for court approval and must provide for payments of fixed
amounts to the trustee on a regular basis, typically biweekly or monthly. The
trustee then distributes the funds to creditors according to the terms of the
plan, which may offer creditors less than full payment on their claims.
6. Creditors' Claims and Repayment under the Plan
There are three types of claims:
A. Priority
B. Secured
C. Unsecured
Priority claims are those granted special status by the
bankruptcy law, such as most taxes and the costs of bankruptcy proceeding.
Secured claims are those for which the creditor has the right take back certain
property (i.e., the collateral) if the debtor does not pay the underlying debt.
In contrast to secured claims, unsecured claims are generally those for
which the creditor has no special rights to collect against particular property
owned by the debtor. The plan must pay priority claims in full
unless a particular priority creditor agrees to different treatment of the claim
or, in the case of a domestic support obligation, unless the debtor contributes
all "disposable income" - discussed below - to a five-year plan.
"Secured" Claims Under the Repayment Plan
If the debtor wants to keep the collateral securing a particular claim, the plan must
provide that the holder of the secured claim receive at least the value of the
collateral. If the obligation underlying the secured claim was used the buy the
collateral (e.g., a car loan), and the debt was incurred within certain time frames before the bankruptcy filing, the plan must provide for full payment of the debt, not just the value of the collateral (which maybe less due to
depreciation). Payments to certain secured creditors (i.e., the home mortgage
lender), may be made over the original loan repayment schedule (which may be longer than the plan) so long as any arrearage is made up during the plan. The debtor should consult an attorney to determine the proper treatment of secured claims in the plan.
7.Discharg chapter
13 debtor is entitled to a discharge upon completion of all payments under the
chapter 13 plan so long as the debtor: (1) certifies (if applicable) that
all domestic support obligations that came due prior to making such
certification have been paid; (2) has not received a discharge in a prior case
filed within a certain time frame (two years for prior chapter 13 cases and
four years for prior chapter 7, 11 and 12 cases); and (3) has completed an
approved course in financial management. The court will not enter the
discharge, however, until it determines, after notice and a hearing, that there
is no reason to believe there is any pending proceeding that might give
rise to a limitation on the debtor's homestead exemption.
Effect of the Discharge
The discharge releases the debtor from all debts provided for by the plan or disallowed, with
limited exceptions. Creditors provided for in full or in part under the chapter 13 plan
may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations. As a general rule, the discharge releases the debtor from all debts provided for by the plan or disallowed, with the
exception of certain debts referenced in the Bankruptcy Code. Debts not discharged in chapter 13 include certain long term obligations (such as a home mortgage), debts for alimony or child support, certain taxes, debts for most
government funded or guaranteed educational loans or benefit over payments, 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
included in a sentence on the debtor's conviction of a crime. To the extent that they are not fully paid under the chapter 13 plan, the debtor will still be responsible for these debts after the bankruptcy case has
concluded. Debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for restitution or damages awarded in a civil case for willful or malicious actions
by the debtor that cause personal injury or death to a person will be discharged unless a creditor timely files and prevails in an action to have such debts declared non-dischargeable.