A Bankruptcy Can Also Be A Repayment Plan

Chapter 13 Bankruptcy Is Also Called 'Debt Reorganization'

Chapter 13 bankruptcy is commonly referred to as a wage earner bankruptcy. This type of bankruptcy is called for when a Chapter 7 is unavailable, such as when you have a prior Chapter 7 filing within the past eight years or when you have significant equity in your house, vehicles or other property.

Chapter 13 bankruptcy is also sometimes referred to as a partial payback bankruptcy or debt reorganization bankruptcy. These nicknames come from the fact that Chapter 13 bankruptcy results in reorganization of your debt that you repay with monthly payments over a three- to five-year period.

How To Begin the Process of Filing a Chapter 13 Bankruptcy Petition

With certain exceptions, you begin the process by completing a court-approved counseling session. Your lawyer will provide you with the name and address of some approved counselors or you can look on the Internet for additional listings. This counseling session can be taken over the telephone or on the Internet and takes approximately one hour and 15 minutes.

As in a Chapter 7 bankruptcy, you begin the process by filing a petition that provides detailed information about yourself, your assets, your debts, and your current budget. You must provide specific documentation, including your income statements, bank accounts, insurance policies, real and personal property values, and the last four years of your tax returns. One purpose for providing this information is to allow the bankruptcy trustee to calculate the extent of your equity in real estate and personal items so that he or she can determine the amount of your necessary monthly payment. You must list every debt you have even though it may be to a relative or to someone you do not want notified of the bankruptcy filing. You must also list every asset you own along with its accurate value.

The Chapter 13 Bankruptcy Repayment Plan

Along with the petition, you will also have to file a repayment plan in which you propose to repay certain secured debts directly, have the trustee pay some portion of the unsecured debts from the monthly amount paid to him and, where appropriate, surrender certain secured items of property.

Over the three- to five-year period, the payments to the trustee can amount up to 100 percent of your total unsecured debt, but generally it is significantly less. During that time, those creditors listed in your petition may not contact you by phone or letter without the consent of you and your attorney. However it is imperative that you continue paying your secured debts that you are going to keep during this period.

At the end of this period, any remaining balance due to your unsecured creditors is discharged or "wiped out." If at any time during the repayment period you default on any payments to the trustee or to your creditors, the repayment plan can be dismissed and the prohibition from foreclosure, repossession, or collection lawsuits in effect during the plan is lifted, allowing creditors to pursue such remedies.

There are certain time limitations on the filing of a Chapter 13 after filing a prior bankruptcy as well as residency requirements. These you'll have to discuss with your attorney.

How We Help You File a Chapter 13 Bankruptcy Petition

After meeting with your attorney, you'll be asked to complete a packet of information including information about yourself, a list of your assets, a list of your debts, and an accurate current budget. When you return the packet with the necessary information to our law office, we will prepare a petition and a proposed repayment plan, which you will review and sign. As soon as you pay the initial attorneys' fees and filing costs, we will file the petition and proposed repayment plan with the federal court. A bankruptcy trustee will be assigned to review the petition and proposed plan.

The Creditors' Meeting

About a week after the petition is filed you will receive the notice of the first meeting of creditors, setting the time and place of your hearing. These hearings take place about seven weeks after you get the notice. Your lawyer will attend the creditors' meeting, sometimes called the 341 hearing, with you.

At the 341 hearing, you will present your driver's license or state identification card and your Social Security card to the trustee, who will verify your identity. The trustee will then ask you questions concerning the petition and tape record your answers. As a rule, during the period of time between filing the petition and attending the creditors' meeting, you must continue to make payments on your secured debt, such as your house and car, and make the proposed payment to the trustee as if it will be the amount finally approved by the trustee. After the trustee analyzes the petition and proposed repayment plan, the trustee may modify the amount of the monthly payment. After the final plan is approved, a court hearing will be held where the court confirms the plan.

Discharge of Debt

Once you complete payments to the trustee under the approved repayment plan, you will receive a paper in the mail entitled Discharge of Debtor, which indicates the file has been closed and any remaining debt is discharged — meaning that you do not have to pay any debt that remains.

The Cost of Filing a Chapter 13 Bankruptcy Petition

Because of the additional work necessary to obtain an approved repayment plan, the attorneys' fees associated with a Chapter 13 bankruptcy petition are somewhat more than those for a Chapter 7 filing. Additionally there will be ongoing reporting requirements of tax returns to the trustee during the three- to five-year period of the repayment plan.

Chapter 11 Instead of Chapter 13

In certain instances, a debtor's unsecured debt may be over $337,000. This would disqualify them for filing a Chapter 13 bankruptcy. However, it may still leave you the option of filing for Chapter 11 bankruptcy protection. Our firm can assist businesses, and certain individuals, with the filing of a Chapter 11, treating it as a 13 and helping structure payments to repay your debt.

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