The filing of a Chapter 13 bankruptcy petition automatically stays: (1) any action against the debtor or the debtor's property to collect amounts owed to creditors, (2) any enforcement of judgment against the debtor, and (3) any repossession or foreclosure on any of the debtor's property.
This statutory injunction implemented by the Bankruptcy Code, 11 USC 362(a), is one of the most potent weapons a debtor has at his or her disposal. It keeps creditors at bay while a Chapter 13 petition is being processed.
Moreover, the family residence can be saved from foreclosure without a substantial cash payment, which is not possible in a Chapter 7 petition.
In addition, a Chapter 13 petition can prevent the repossession of automobiles, household appliances, and other commodities, as well as reduce the interest rate and balance of certain consumer debts.
Thus, the greatest benefit of a Chapter 13 petition is debt discharge without the loss of nonexempt assets, provided the debtor pays creditors not less than the value of the nonexempt assets he or she is retaining in accordance with a confirmed repayment plan not exceeding five (5) years.
Essential Conditions For A Chapter 13 Petition:
A._ Quantity of Debts:
As a form of consumer reorganization, a Chapter 13 petition is only available to individuals with less than $336,900.00 in noncontingent, liquidated, unsecured debts and less than $1,010,650.00 in noncontingent, liquidated, secured debts, per 11 U.S.C. 109(e), as adjusted every three (3) years by the Consumer Price Index.
B. Regular Income:
At the outset of the case and for the next three to five years, dependent on the length of the repayment plan, the debtor must have a regular (gross) income, all of which must be dedicated to repaying creditors in accordance with the repayment plan. Current monthly income less: (1) the amount necessary for the support or maintenance of the debtor or a dependent of the debtor; (2) charitable contributions not exceeding 15 percent of the debtor's gross annual income; and (3) the amount necessary for the operation of the debtor's business, if the debtor is engaged in business.
Prior Insolvency Petition:
If the debtor filed a Chapter 7 petition and received a discharge during the 4-year period preceding the filing of a subsequent Chapter 13 case, or obtained a discharge in a previous Chapter 13 case during the 2-year period preceding the filing of a subsequent Chapter 13 case, the debtor will not be eligible for a second discharge in the subsequent Chapter 13 case.
This prohibition in 11 USC 1328(f), added by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), aims to end the so-called """"Chapter 20,"""" which involves filing a Chapter 13 after a Chapter 7 to obtain discharge for debts that survived the Chapter 7 discharge.
If a prior Chapter 13 petition was dismissed with prejudice, no new case may be filed for 180 days.
Credit Counseling Summary:
Under 11 USC 109(h)(1), the Chapter 13 debtor must have received a credit counseling briefing from an approved agency within 180 days prior to submitting the petition.
11 USC 109(h)(3) allows the Bankruptcy Court, for good cause, to grant an extension of 30 days and an additional 15 days for exigent circumstances.
On the U.S. Trustee Program's website, approved credit counseling agencies provide debtors with access to online, in-person, and telephone credit counseling. The filing fee and administrative fees for a Chapter 13 petition total $274.00, or $235.00 plus $39.00.
Chapter 13 Repayment Plan Due Within 15 Days Of Petition Filing:
11 USC 1321 mandates that a Chapter 13 debtor file a repayment plan for the commitment period. The period of commitment is determined by the ""means test"" applicable to Chapter 7 petitions. Under 11 USC 1322(d)(2), if the debtor's current monthly income multiplied by 12 is less than the pertinent state median income for the debtor's household, the plan may not exceed three (3) years, unless the Bankruptcy Judge approves a longer period not to exceed five (5) years for cause.
A. Complete Payment Of Secured Claims:
A Chapter 13 debtor must pay in full secured claims (home mortgage loans, auto loans, and financings of household products with purchase money security interests) plus interest, and pre-petition arrears can be eliminated by paying interest at an appropriate rate through the repayment plan. Regarding real estate claims, the Chapter 13 plan typically requires the debtor to pay the monthly mortgage directly to the creditor.
Claims that are not secured by the debtor's primary residence, such as personal property-secured claims, may be divided into the secured portion (replacement value), which must be paid in full with interest, and the unsecured portion, which may be paid from 0% to 100% without interest under the plan for unsecured claims.
B. Payment Of Unsecured General Claims:
Priority claims are domestic support claims, administrative claims [debtor's attorney's fee and Chapter 13 trustee's fee], and priority tax claims; unsecured nonpriority claims must be paid at least as much under a Chapter 13 plan as they would be under a Chapter 7 plan.
These claims consist of credit card debts, judgment debts without lien filings, signature loans, and the unsecured portion of particular secured claims. The amounts to be paid to unsecured creditors may be a certain percentage (such as 100%, 70%, 0%, etc.) of the claims' amounts, or pro rata from available funds, following the payment of permitted secured and priority claims.
Initial Payment Amount:
Under 11 USC 1326(a)(1), initial payments under the Chapter 13 plan must be made within thirty (30) days of the submission of the plan or the petition, whichever is earlier, unless otherwise ordered by the Bankruptcy Court.
Until certification of the plan, the debtor must make direct payments to secured creditors, unless the Bankruptcy Court orders otherwise. The majority of Chapter 13 fiduciaries will accept cashier's checks or money orders as monthly disbursement agents for debtors' estates.
D. Verification Of The Strategy:
Creditors and the Chapter 13 trustee evaluate the plan and supplementary documentation. If the requirements of 11 USC 1325(a) are not met, they may file an objection to the plan accompanied by a motion to dismiss.
If there are no objections or the objections are overruled, the plan will be confirmed by the Bankruptcy Court at a confirmation hearing held within twenty (20) to forty-five (45) days of the Section 341(a) meeting of creditors conducted by the trustee.
Roman P. Mosqueda has represented debtors, creditors, and trustees as a bankruptcy attorney for over fifteen (15) years.
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