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   Personal Bankruptcy found in Money & Business  :  Personal Finance A   A   A
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How to File for Chapter 13 Bankruptcy

The process of filing for Chapter 13 bankruptcy has two main stages: filing a bankruptcy petition and payment plan, then fulfilling the actual payment plan. The first stage typically takes about two months and includes everything from the filing of bankruptcy forms to the confirmation hearing, at which a judge approves or rejects your payment plan. The second stage begins immediately upon receiving the court’s approval of your Chapter 13 payment plan. The plan itself lasts 36–60 months (3–5 years)—60 months (5 years) is the most common timeframe. The eight steps of the entire process are:
  1. Prepare your bankruptcy petition and payment plan.
  2. Attend mandatory credit counseling.
  3. File the bankruptcy petition and payment plan.
  4. Attend the 341 meeting.
  5. Attend the confirmation hearing.
  6. Make payments according to the plan.
  7. Attend mandatory credit counseling (again).
  8. Receive a discharge of debts eligible for discharge.

1. Prepare Your Petition and Payment Plan

Chapter 13 bankruptcy requires you to complete a bankruptcy petition, which consists of the same forms and documentation that make up a Chapter 7 bankruptcy petition (see “1. Obtain Bankruptcy Forms” in How to File for Chapter 7 Bankruptcy). You must also attend two sessions of mandatory credit counseling: one within 180 days prior to filing, and one anytime after the confirmation hearing but before discharge (explained below).

The Chapter 13 Plan

Debtors usually file for Chapter 13 bankruptcy because they can’t keep up with their payments on secured debts for homes, cars, or other property that they don’t want to surrender to the creditor. Rather than discharge these debts, Chapter 13 requires you—usually with a lawyer’s help—to create a payment plan to prove to the court (and creditors) that you can pay back some or all of the secured debt, including any missed payments, over the next 3–5 years.

The payment plan, known as a Chapter 13 Plan, consists of a month-by-month budget (including projected income, expenses, and debts) that shows how much existing debt you can afford to pay each month in addition to debts you incur during the life of the plan. Though the plan focuses on secured debt, it can also include a budget for paying off some or all of your unsecured debt.

A Sample Chapter 13 Plan

Say you’ve missed six months of mortgage payments that total $6,000. Your Chapter 13 Plan would need to show how you can once again start to pay your regular $1,000-a-month mortgage payments plus $100 a month toward the $6,000 worth of payments you missed. The $100 figure is calculated by dividing the past-due secured debt ($6,000) by the total number of months in the Chapter 13 plan—this example assumes you would choose the 60-month maximum.

2. Attend Mandatory Credit Counseling

You must attend your first session of credit counseling no more than 180 days before you file for bankruptcy. For more on these sessions, see Mandatory Credit Counseling.

3. File Your Petition and Payment Plan

The filing process for the petition portion of Chapter 13 bankruptcy works just like that of Chapter 7 (see “4. File Your Bankruptcy Petition” in How to File for Chapter 7 Bankruptcy). You can submit the payment plan separately, up to 15 days after filing your petition, but most filers choose to submit the petition and the payment plan on the same day.

Be sure to choose your filing date carefully. The court will consider only the debts, assets, income, and expenses you hold on the day you file. Any future debts that you incur will not be a part of your Chapter 13 plan—you’ll be required to pay them on time and in full.

What Happens After You File Your Chapter 13 Petition?

Immediately after you file, the court takes two steps:
  • It initiates an automatic stay: This makes it illegal for creditors to contact you or sue you to collect on your debts.
  • It assigns a trustee to your case: In addition to overseeing the actual bankruptcy proceeding, the trustee remains in touch with you through the duration of the payment plan to ensure that you fulfill your obligations. The trustee’s first responsibility after you file your petition is to review your petition to ensure that it contains all the necessary forms and documents and that all the required information has been provided.

What Happens After You File Your Chapter 13 Plan?

The trustee’s next responsibility is to review your Chapter 13 plan closely to assess its viability. The trustee shares his or her assessment of the plan at the 341 meeting (explained below). In the meantime, the trustee mails to you and each of the creditors listed in your petition a Notice of Commencement that stipulates:
  • The date, time, and place of the 341 meeting
  • The date, time and place of the Chapter 13 confirmation hearing (explained below)
  • The deadline by which creditors must file objections to your Chapter 13 plan

4. Attend the 341 Meeting

In a Chapter 13 bankruptcy, the 341 meeting takes place 3–4 weeks after the filing date and includes you, your lawyer (if you’ve retained one), creditors (if they choose to attend), and the trustee. The meeting takes place in a meeting room—not a courtroom—and usually lasts 10–15 minutes.

The Purpose of the 341 Meeting

The main purpose of the 341 meeting in a Chapter 13 bankruptcy case is to give the trustee a chance to question you under oath about your petition and payment plan. If creditors are in attendance, the trustee will listen to their views on your plan and let them question you directly.

Why Do Creditors Attend the 341 Meeting?

Creditors attend 341 meetings in Chapter 13 bankruptcy cases to raise objections to the terms of the your Chapter 13 plan or to correct the amount that you claim to owe the creditor. They also attend to inquire about the condition or whereabouts of the property, such as homes and cars, for which they issued you a loan.

The Possible Outcomes of the 341 Meeting

There are two possible outcomes of the 341 meeting:
  • The trustee approves: If the trustee is satisfied with your petition and Chapter 13 plan, he or she will adjourn the meeting and schedule the confirmation hearing (explained below) for 20–45 days after the date of the 341 meeting.
  • The trustee does not approve: If the trustee finds anything questionable or lacking in your petition or Chapter 13 plan, he or she will request that you provide additional documentation, such as more detailed income or account statements that validate your proposed plan. You’ll then need to file an amended Chapter 13 plan. (Debtors often end up filing at least one amended plan following the 341 meeting.) Even if the trustee doesn’t approve at this stage, he or she will schedule the confirmation hearing anyway, since the final decision in a Chapter 13 rests with a judge.

5. Attend the Confirmation Hearing

The confirmation hearing is held in a bankruptcy courtroom and led by a bankruptcy court judge. At the hearing, the judge listens to the trustee’s assessment of your petition and Chapter 13 plan, reviews the main facts of the case (including unresolved creditor claims and objections), and then takes one of four actions. The judge can:
  1. Approve the petition and plan as-is
  2. Reject the petition and/or plan and request revisions by a certain deadline
  3. Reject the petition and/or plan and convert the case to a Chapter 7 bankruptcy, if such a change would benefit your case
  4. Reject the petition and/or plan and dismiss the case
If the court rejects your petition and/or payment plan, you do have the option to file for another type of bankruptcy or refile for a Chapter 13.

6. Make Payments According to the Plan

If the judge approves your plan, the court will issue an Order Establishing Deadline for Making Payments, an official, approved version of your Chapter 13 plan. You must mail payments (cashier’s checks or money orders only) directly to the trustee according to the amounts and dates specified in the order—some courts allow you to pay by transferring funds directly from your paycheck. The first payment will be due no more than 30 days after the confirmation hearing. The trustee will then distribute the funds each month to your creditors.

What Happens If You Skip a Payment?

If the trustee has not received payment, the court will mail you an affidavit of default that requires you to make the missed payment and your next payment within 21 days. If you fail to make these two payments, your bankruptcy will be dismissed.

What If Your Financial Situation Changes?

If your financial circumstances change—for better or worse—during your payment plan, you can file an amended plan. The court is not obliged to authorize any changes, however, and if the court deems the proposed changes suspicious or too drastic, it can even dismiss the bankruptcy.

7. Attend Credit Counseling (Again)

To receive a discharge of any debts under Chapter 13, you’ll need to attend a second session of credit counseling anytime after your confirmation hearing but before the end of your plan. After the session, you’ll receive a certificate that proves your attendance, which you’ll need to submit to the court to qualify for discharge.

8. Receive a Discharge of Debts

In Chapter 13 bankruptcy, discharge occurs after you’ve made all payments under the Chapter 13 plan, which typically takes 3–5 years. Since the plan usually doesn’t require you to pay off all secured and unsecured debt, some debts will remain at the end of the plan. Discharge occurs when the court decides to release you from any remaining debts—the court will consider discharging only those debts that were included in your original Chapter 13 petition. You’ll be eligible for discharge only if you have:
  • Made all payments on time and in full as specified by the Chapter 13 plan
  • Not had a prior Chapter 13 bankruptcy discharge within the past six years or a prior Chapter 7 bankruptcy discharge within the past eight years

Debts Not Dischargeable by a Chapter 13 Bankruptcy

Certain types of debt are not dischargeable by a Chapter 13 bankruptcy:
  • Student loan bills
  • Debts for child or spousal support
  • Tax bills for unfiled or fraudulent tax returns
  • Debts for luxury goods bought on credit cards within 90 days of the filing date
  • Cash advances of more than $750 obtained within 70 days of the filing date
  • Fines, penalties, or restitution levied against you by a federal, state, or local government for violating a law
  • Judgments you’ve been ordered to pay in lawsuits that involved drunk driving
  • Debts for loans taken out against retirement accounts
Nearly all other types of debt are potentially eligible for discharge, though whether the court grants a discharge of particular debts depends on your specific situation.
 
 
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