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COMMON QUESTIONS ABOUT CHAPTER 13 BANKRUPTCY, Part 1Q -- "What is the difference between chapter 7 and chapter 13?" A — In a chapter 7, or liquidation, a debtor only is allowed to keep exempt property. The rest of their assets are liquidated (turned into cash) and distributed to creditors based on their claim priority. In chapter 13, or wage earner plan, a debtor is allowed to keep their assets and property and their debts are paid off through "future earnings." While not all creditors in a chapter 13 plan may be paid, they generally cannot be given less than they would have received in a chapter 7 proceeding. A chapter 13 bankruptcy is primarily for debtors earning regular income who want to keep their assets and payoff their debts as best they can. If a debtor files for chapter 7 and the court decides that the debtor could have to some extent paid creditors through a chapter 13 plan, the chapter 7 may be dismissed as "abuse" of bankruptcy protection laws. Q -- "Where do I file a bankruptcy petition?" A -- A bankruptcy petition is filed at the bankruptcy court in the district where the debtor has resided or operated a business for the greatest portion of the last 180 days. Q -- "What are the filing fees for a chapter 13 case?" A -- As of this writing, the filing fees are $180 for either a individual or joint case. Q -- "If I file for bankruptcy, will my name appear in the newspaper?" A — GENERALLY NOT. Although some local business journals may publish legal notices, which include recent bankruptcy listings, most local newspapers do not. Q -- "Do I lose any legal rights by filing bankruptcy?" A -- NO. Bankruptcy is a civil, not a criminal proceeding, You do not lose any civil or constitutional rights. Q -- "Do I have to repay all of my creditors under chapter 13 plan?" A -- With the exception of creditors with priority claims (unpaid wages, taxes) and creditors who are fully secured, the debtor must only pay those debts that they can reasonably afford. Q -- "When do I have to start making payments to the plan?" A -- You must begin making payment 30 days after you have filed your plan with the court. Depending on local rules, the payments may be made either by the debtor or his employer. Q -- "How long does a chapter 13 proceeding last?" A -- A typical case lasts for three years. With court approval, a debtor may have a plan that lasts up to five years. No case is allowed to last more than five years, including extensions caused by modifications. Q -- "Must all of my creditors approve my plan?" A -- NO. First, the court approves your plan, not the creditors. While creditors may object to the plan, as long as it conforms to law, the court will probably approve it. Q ----"How are my secured creditors treated in a chapter 13 proceeding?" A -- Secured creditors must be dealt with in one of four ways:
Q -- "How are the claims of unsecured creditors treated in a chapter 13 proceeding?" A -- Unsecured creditors must file their claims within 90 days after the first date set for the meeting of creditors. Claims that are not filed timely will not be allowed and will be discharged after the plan has been completed. The debtor may file an objection to the claim. When a claim is allowed, the trustee will start making payments as provided for in the plan. Q — "What should I do if temporarily cannot make payments under my plan?" A -- If you cannot meet the conditions of your plan temporarily, you can file a modification of the plan with the court. Q -- "What should I do if after confirmation, I cannot fulfill my plan due to a permanent disability or similar situation?" A -- In such a situation that is not the debtor's fault or is beyond their control, the court may issue a discharge and close the case. Q -- "What happens if I do want to complete the plan?" A -- You have the right to dismiss your case whenever, at which point your matters return to as they were before the case was filed(short of payments made to creditors). You also may convert your case to a Chapter 7 liquidation. You cannot simply stop making payments. If you do, the court may enforce the plan by garnishing your wages, dismiss your case, or convert it to a chapter 7. Q -- "What should I do if I move before I receive my discharge?" A -- Because most correspondence between the debtor and the court occurs by mail, the debtor must notify the trustee in writing that they have moved. Failure to do so can result in a case being dismissed because the debtor missed important correspondence from the court. Q -- "How will bankruptcy affect my credit?" A — GENERALLY ADVERSELY. Even if you've had a good credit rating, a bankruptcy will have a negative on your future financial affairs. Most bankrupts have a recent history of "derogs" or derogatory remarks on their on their credit reports and lenders will base their decision on your recent performance and not your overall performance. While logic will argue that recent bankrupts with a good job and previously sound credit rating represent a "good credit risk," most lenders will not subscribe to that theory. It is possible to rebuild good credit, but like most things, it will take time and patience. Many people enjoy a good credit standing for years and then experience unfortunate circumstances beyond their control. |
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