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Bankruptcy Alternatives / Debtor's Options

Frequently Asked Questions - Chapter 13 Debtors

This FAQ has been prepared for someone who has just decided to file for a Chapter 13 bankruptcy and has questions about the process ahead, but those only thinking about a Chapter 13 should find it useful as well. For more information visit our complete Chapter 13 FAQ guide including a basic FAQ on what is a chapter 13 bankruptcy.
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Q. I decided I am a person who should file Chapter 13 bankruptcy, what happens now?
A. These three things first:

  1. The petition. This is simply the document which asks the court to bring you relief under chapter 13 of the United States Bankruptcy Code. It is a simple two page form, which will be signed by all debtors and the attorney. Once this form is filed along with the filing fee you will be given a docket number. It is at this initial stage that you have officially "filed" a chapter 13 bankruptcy. From this point on all actions by creditors are stayed, except those which might be allowed by motion in the bankruptcy court. This means creditors may no longer demand money from you, bring you to court to collect debt or even to proceed with foreclosure or repossession of your property. Getting this docket number to the creditor quickly as they need it to stop foreclosure proceedings. While most debtors file chapter 13 bankruptcy to avoid foreclosure the filing allows you to stop collection actions and reorganize credit card debt too.
  2. Several days after you file your petition you need to submit a list of all your creditors including their names and addresses to the bankruptcy court. This document will be referred to as the Matrix. The bulk of bankruptcy forms required by the debtor in a chapter 13 case must be submitted to the court about a week after the matrix. This paperwork is quite lengthy it includes many schedules of your assets, liabilities, income, expenses, past financial history as well as your plan outlining exactly how you propose to reorganize under chapter 13 and evidence that you are capable of completing the plan.
  3. Following this initial submission of the Chapter 13 reorganization plan you will have the opportunity, if needed, to file amendments as necessary. This may be needed to add creditors, change the class of a creditor or modify the schedules or plan given information which comes to light after the initial filing. Keep in mind that amendments may require an additional fee for your lawyer as well as for the bankruptcy court.

Q. When do I see the Judge?
A. Unless your case has contested issues which must be heard before a Judge chances are you will never personally appear before a Judge. You will, however, meet with a Chapter 13 Trustee.

Q. When does this happen and how many meetings will there be?
A. In most cases you will meet with the Chapter 13 Trustee only once. Expect that the meeting will take place one to three months after you have filed the bankruptcy petition.

Q. Who else will be at the meeting and what will happen there.
A. The title of the gathering will be a 341 Creditors meeting. Everyone you owe money to, who you have listed on your schedules, will be invited to attend. At the meeting they will be given an opportunity to ask any questions regarding your financial situation which may effect the plan you have proposed. In reality few if any of these creditors attend. The most likely guests will include large creditors, the holder of your mortgage or someone you might owe an unusually large sum of money to another creditor almost sure to accept an invitation to this party will be Sears insisting any hard goods you have purchased, such as refrigerators or stoves should be treated as secured merchandise to be either redeemed or reaffirmed. I have even seen them to go so far as to make this claim for car batteries and tires. Once you understand secured vs. unsecured assets you can figure the secured creditors stand as those most likey to appear at a Chapter 13 bankruptcy 341 meeting.

Q. Will anyone other than creditors be at the meeting?
A. Yes. Your attorney or someone from their firm will be there to represent you and speak on your behalf as needed, although many of the questions will be asked of you directly. The person asking the questions and meeting coordinator will be the Chapter 13 Trustee. Their job is to make sure that the plan meets all the specifications as required by the Bankruptcy Court and that the unsecured creditors are protected and allocated as high of a return as might be possible. If all goes well there will be only one meeting. Following the meeting, if there are no objections raised, all that there will be left to do is make all payments outlined in the plan in a timely manner.

Q. Who should I be paying and when?
A. Now that you have filed a Chapter 13 bankruptcy the payments will fall into three categories:

  1. Secured creditors will be paid "outside" the plan. This will include fully secured first mortgages and possibly second or third mortgages as well, consult with your bankruptcy attorney and be very clear on who should be included in this category. Payments to this group should be made regularly directly to the creditor, just as they were supposed to have been made before you got into trouble or filed bankruptcy. In other words, if your payments were due on the first of the month the next time the first rolls around you should make a payment. Failure to make these payments will be grounds for these creditors to ask for relief from the automatic stay and proceed with foreclosure on your property.
  2. The next group will consist of unsecured creditors who had accrued debt before your bankruptcy petition was filed, as well as certain unsecured portions of secured creditors and any other debt you proposed to pay "inside" the plan. All of these people will be paid through the Chapter 13 Trustee, you will write one check each month to the Chapter 13 Trustee, the Trustee will distribute funds from there. I would recommend that you not under any circumstances speak with or directly pay any creditor in this class any money that was owed directly prior to the bankruptcy filing. Any negotiations, which may involve reaffirmation of debt or payments outside the plan, should be strictly negotiated by your attorney. Creditors will likely try to contact you personally in attempt to have you reaffirm old debt or pay them money. Your only contact with them should be an instruction that they must speak with your attorney. Do not give them any money, do not sign any papers they may send you, do not speak with them other than telling them to contact your attorney. Checks to the Chapter 13 Trustee must be in the form of cashiers check, bank check or money order. Personal checks will not be accepted all checks must include a case number or docket number clearly written on in order to be properly credited to your account. Bring your first check with you to the 341 meeting if you haven't been making them prior to the meeting. If the 341 meeting is two months or more after you filed it is not a bad idea to send a check for your projected initial plan payment or a check for $150.00 to the Trustee each month prior to the 341 meeting.
  3. Third group includes creditors who are owed money post-petition or after you have filed for bankruptcy. Debts incurred after filing for bankruptcy receive no protection from the Bankruptcy Court whatsoever. Whether it be utility bills, credit card bills or mortgage payments due after you have filed for bankruptcy, all of these must be paid in a timely fashion. Let me take a moment to mention you should understand the causes of bankruptcy and if you need to change bad consumer spending habits to avoid trouble again.

Q. How long will I have to continue to pay the Trustee?
A. This depends upon your income and size of the debt. By bankruptcy law statute all plans should be between 36 and 60 months.

Q. What if I have enough income that I may pay in less than 36 months?
A. If this is the case the Trustee will likely demand that the plan be 36 months and that a larger percentage of funds go to the unsecured creditors.

Q. What if I have extra money to pay more to the trustee one month?

A. I don't recommend this. I you have a bit of extra money save it. If a time comes later where a problem means you will have to miss a payment you may not be given credit for previous early payments and there could be trouble. Keep in mind that if your income changes you are supposed to tell the Chapter 13 bankruptcy court and have your payments adjusted.

Q. What percent do the unsecured creditors usually receive?
A. In most cases unsecured creditors receive 10 percent of their claim. In other words if a credit card had a $1000.00 balance before you filed they would receive $100.00 over the course of the Chapter 13 reorganization plan. This $100.00 would then be spread over the 36 or 60 months of the repayment plan so that you are only paying a few dollars every month to satisfy this creditor.

Q. What if I have so many creditors that I need more than 60 months to complete the plan?
A. If you can not complete your plan in 60 months it is likely one or more of the creditors or the Trustee will object to the plan and your case will be dismissed or converted to a Chapter 7. If the creditors are willing to work with you some creative options may emerge. To get an estimate of your chapter 13 plan payment and the term of the plan use the chapter 13 bankruptcy payment calculator tool.

Q. Can they still foreclose on my house after I have filed?
A. If the court gives them permission to they may. If you are making all your payments in a timely fashion the court will not likely grant such a motion. This is why it is very, very, very important that all payments be made to the secured creditors after you have filed. Since you are already in a bankruptcy if you fail behind on these payments and a creditor receives a Relief from Stay, in other words permission to proceed with a foreclosure, there will be nothing you can do to stop them and you will lose your home.

Q. What happens if I fail to pay the Trustee?
A. The Trustee can move to dismiss your Chapter 13 bankruptcy case. If this happens you will lose the protection of the bankruptcy court both in terms of reducing the debt owed to your creditors as well as protective relief granted by the court.

Q. What happens if I have trouble making a payment in any given month?
A. Communication is very important. Let your attorney know this information that he or she may alert the Trustee or creditors involved. If it is a temporary one or two month situation it may be possible to work out a solution far less drastic than dismissing the case or allowing a Motion for Relief from Stay.

Q. What if my inability to make payments becomes an on going problem or I realize something I am incapable of completing the plan?
A. If you realize this before the court takes action on its own you will have the choice of allowing the Chapter 13 case to be dismissed or trying to convert the case to a Chapter 7. The correct option will depend on your debt, assets, several other personal considerations. If looking at these questions you should learn the differences of Chapter 7 vs. Chapter 13 bankruptcy.

Q. I changed my mind and want to dismiss my Chapter 13 bankruptcy, can I just cancel it and make it like I never filed Chapter 13 bankruptcy in the first place?
A. While you certaily maintain the right to ask for dismissal for your own Chapter 13 case as well as the right to ask for conversion to Chapter 7, the court will count your filing in terms of restictions on the number of bankruptcies you may file within a given number of years and the bankruptcy will still end up on your credit report and score even though you dismissed it.

Q. Are there any other legal fees beside what I may have paid before filing?
A. If all goes well there will not be. If, on the other hand, there are amendments required, motions from Relief from Stay which must be defended other adversarial proceedings, motions and especially a conversion to Chapter 7, they will all require additional legal fees.

Q. I filed my Chapter 13 pro se because I needed an emergency petition to stop foreclosure on my home, can I get help from a lawyer or am I locked into finishing the Chapter 13 bankruptcy on my own?
A. Just because you filed pro se (or by yourself without an attorney) does not mean it's too late to find a bankruptcy lawyer or hire a bankruptcy attorney to help you complete your Chapter 13.

Remember, creditors do not want your house, they want your money.
Pay them their regular payments, pay the trustee and you may keep your home.

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    Nothing contained herein should be construed to constitute advice for your personal circumstances. This is intended as a peripheral exposure to the various options available, but by no means is this a comprehensive or exhaustive analysis of the bankruptcy laws or their alternatives. Whether or not you should file a Chapter 7 bankruptcy, Chapter 13 bankruptcy, or any bankruptcy, will vary depending on your personal circumstances and should only be undertaken after careful consideration, analysis and after consultation with an attorney experienced with such matters. These pages may contain information and rules peculiar to the Commonwealth of Massachusetts.

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    This page was most recently updated 03/09/2011

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