Summary: In the appropriate case, Chapter 13 bankruptcy may be used to catch up on past due mortgage payments, car payments, or taxes. Chapter 13 bankruptcy does everything a Chapter 7 does but sometimes has additional benefits.
Chapter 13 Bankruptcy – How It Works
In Chapter 13 bankruptcy, a “Chapter 13 Plan” is filed with the bankruptcy court which sets out a monthly payment that you will pay over a 3 to 5 year period. The plan will specify the property, such as your home or cars you are keeping and how you propose to pay this debt. Some debts, such as taxes and secured debts may be paid in full while other creditors may receive only a partial payment or no payment. In many cases, unsecured creditors do not receive any payment. Understanding who gets paid and how much in a Chapter 13 Plan can be confusing because every person’s case is different. Unless your case is very complex, a bankruptcy attorney can usually roughly estimate how much your Chapter 13 Plan payment will be at your initial consultation. The Bankruptcy Court must approve any payment plan.
After the bankruptcy documents are filed with the court, you make a monthly payment to a bankruptcy trustee. Once the Chapter 13 Plan is approved by the Court (confirmed), the Chapter 13 Trustee distributes the money to the creditors according the to Chapter 13 Plan. The trustee in Longview, Texas and surrounding areas (including Gregg, Harrison, Upshur, Panola, Morris, Marion, Cass and Camp counties) is Mr. John Talton. The chapter 13 trustee’s website contains information about Chapter 13 bankruptcy and once the case is actually filed, information regarding the Debtor’s specific case.
How Much Will Your Monthly Payment Be?
The monthly payment is determined in a number of ways. There can be both a floor and a ceiling to the payment amount. The floor (or minimum) is determined by simply adding together all the things that the individual wants in the Plan to what is required to go in the Plan (mortgage arrearage, property taxes, auto loans, administrative costs, etc) and figuring out how much it takes per month to pay everything off in the 3-5 year time frame. The ceiling (or maximum) is determined in the same way by figuring how much a monthly payment would be if all of the debt was paid back at a low interest rate over 3-5 years. You never pay back more than the total amount of claims filed and allowed. There are administrative costs, attorney fees and possibly interest that have to be paid. You do not have to pay claims that are barred by the statute of limitations or claims that are uncollectible under the law. You may not have to pay all of the unsecured debt if you do not have enough income.
Cost of Chapter 13 Bankruptcy
The Court sets a “no-look” fee for Chapter 13 bankruptcies. The “no look” fee in the Eastern District of Texas is $4,000 for non-business and $4,500 for business cases, including stay litigation. There is an additional filing fee of $310.00 which is charged by the Court. The “no look” fee covers attorney fees for filing the case, getting it approved by the Court and reconciling all claims. Once the Trustee files his Notice of Reconciliation of Claims, the period covered by the fee ends. If your Chapter 13 plan is changed after the end of the “no look” period, or if other legal services are required, there may be additional charges. All Chapter 13 attorney fees are subject to court approval. Often, people who need to file bankruptcy are cash-strapped. Many bankruptcy attorneys require a small down-payment before filing, and the balance of the attorney’s fee is paid through the Chapter 13 Plan. In certain cases, such as where you are being garnished and cannot come up with money to file, the Court may allow you to pay the court filing fee in installments over a 120 day period.
We try to be fair in our fees. Each case is treated individually. If your case is complex, we may charge you hourly, rather than the “no-look” fee. If it may be necessary to charge you hourly, we will discuss this at your initial consultation and try to estimate anticipated charges. All attorney fees, other than the “no look” fee and a standard fee for modifying the plan after the end of the “no look” period require the attorney submit a fee application to the Court for approval.
Chapter 13 Bankruptcy Pros and Cons
- You may catch up on certain back taxes
- You may catch up on back child support
- You may catch up on past due property taxes
- You can keep property that is not exempt and would be lost in Chapter 7 bankruptcy by paying the “liquidation value”
- Under certain facts, secured debts can be reduced in the amount that is paid back and the interest rate
- You may stop auto repossessions
- You may stop home foreclosures
- Student loans are not usually dischargeable but may be included in Chapter 13 bankruptcy as part of the “pool” of unsecured creditors, delaying the regular student loan payment while the bankruptcy is pending. Generally though Chapter 13 bankruptcy is not a great way to handle student loan debt because interest continues to accrue. Non-bankruptcy options may be a better choice if your major debt issue is student loans.
- You can’t sell property without approval from the court
- You must get Trustee or Court approval to borrow money while the case is pending
- You may be required to stay in bankruptcy for up to five years
- Lump-sum windfalls, such as an inheritance, a lottery win, personal injury and worker’s compensation settlements, if not exempted, may have to be turned over to the Trustee to disburse to unsecured creditors
Chapter 13 Bankruptcy Hearing
Often called a “341 meeting” or “Meeting of Creditors”, the hearing will take place about a month after filing the case (more specifically, as little as 21 days and up 50 days after.)
Hearings dates and times are chosen by the Court a few days after the case is filed. The Court gives a minimum of 21 days notice before the hearing date. Each hearing is assigned a specific time, like 9:15am or 2:00pm.
The people at the place of the hearings are usually other individuals waiting for their hearing, their attorneys, and the Trustee, along with his staff. The hearings take place in the Chapter 13 bankruptcy Trustee’s office in Tyler, Texas. Even though this hearing is called “Meeting of Creditors” creditors are not required to attend and seldom do unless the case is complex or there is a problem with a particular debt.
The attorney attends the hearing with the client and is present the entire time. The Trustee asks a series of questions relating to the debtor’s finances and their bankruptcy petition and schedules. By the time the hearing is held, the trustee already has documents that support your case and has examined them. He may have questions regarding assets, income or expenses. Typically, the hearing will usually last from 10 to 30 minutes.
In the Tyler and Marshall Divisions, the Chapter 13 bankruptcy Trustee offers a free “Debtor Education” course. This course is required to receive a discharge and costs around $12-20 if not taken with the Trustee. The course is great because debtors get to meet the staff of the Trustee and learn more about how a Chapter 13 bankruptcy works in the Eastern District of Texas. The Trustee’s staff will give tips that will increase chances for success in the case. This course is scheduled the same day at the hearing for convenience.
Chapter 13 Bankruptcy Discharge
A Chapter 13 bankruptcy Discharge comes after the Plan is completed–no surprise. In a textbook Chapter 13 bankruptcy case, the individual makes their Plan payments, has no other financial blunders, and finishes the term of Plan, whether that be 36 months, 60 months, or somewhere in between. Once they have made the final payment, the Trustee begins a process that takes 60-90 days to complete. This process includes verifying all the financial data, ensuring all creditors were paid properly, and all requirements have been met. After he completes this final verification, he notifies the Court that plan payments are complete. The debtor is then required to file certifications regarding direct payment obligations and certain other required matters. The Creditors are given a period to object to the discharge. Finally, the Judge will issue the Discharge and begin closing the case. The debtor will receive the Order of Discharge within a few days of the Judge signing.
Possible Issues in a Chapter 13 Bankruptcy
Fortunately, a Chapter 13 bankruptcy is a little more flexible than a Chapter 7 as far as the issues that may arise. It is still critically important to disclose all assets, debts, and any information that the bankruptcy paperwork requires.
An issue that is an increasing problem with the poor economy is infeasibility. Infeasibility is a fancy term for “can’t afford it.” A Chapter 13 bankruptcy may help a person catch up on mortgage payments, and that’s fantastic, but what if the mortgage itself is larger than the individual’s total income? Does the Chapter 13 bankruptcy really help any? Well, not usually. A Chapter 13 is great a reorganizing debts, but its obviously not great at increasing income. Sometimes, income is the greater issue, not the debt. This situation may call for some hard decision making. Consult an experienced bankruptcy attorney and be totally honest about your situation.
Your Next Step to Debt Relief
If you are struggling with debt, consult with an attorney who can give you guidance on options available to you. Each case is different and consultation with an attorney knowledgeable about the law as it applies to your particular circumstances is an important first step in resolving debt.
Read More About Chapter 13
- Chapter 13 Bankruptcy 341 Hearing Locations
- Chapter 7 vs. Chapter 13
- Effect of Tax Lien on Payment of Taxes in Chapter 13 Bankruptcy
- How Long a Chapter 13 Bankruptcy Lasts
- Loss of Home for Delinquent Property Taxes
- Requirements for Completing a Chapter 13 Bankruptcy
- Saving Your Home With Chapter 13 Bankruptcy
- Save Your Vehicle in Bankruptcy
- Void Liens Against Household Goods
Read More About Bankruptcy and Debt Relief
Chapter 7 – Usually the cheapest and fastest type of bankruptcy, Chapter 7 can wipe out credit cards, medical bills, and loans.
Chapter 13 – Does everything that Chapter 7 does, but with the added benefit of being able to help catch up on past due mortgages, car payments, and taxes.
Taxes – If you owe money to the IRS, there may be several different options for you, including some non-bankruptcy options.
Student Loans – There are many solutions to student loan issues, including getting a better payment plan, curing a default, and even loan forgiveness.
Debt Lawsuit Defense – When a creditor sues you over a debt, you can respond with a defense, which may allow you to win the lawsuit.
Loan Modifications – A special agreement between you and your mortgage lender might help you with a past due mortgage loan.
Debt Library – More in-depth articles on some of the more detailed areas of bankruptcy and debt relief.