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People who file a Chapter 13
bankruptcy do so in order to keep
property in which a creditor has a lien
— like a house or car, or if payments
are behind and the creditor is about to
foreclose or repossess the property.
The filing of a Chapter 13 will stop the
foreclosure sale and allow the person 3
to 5 years to repay some, but not all of
their debts. Rather than wiping out all
their debts in a Chapter 7 proceeding,
Chapter 13 allows a person to reorganize
and pay a certain percentage of
their debts over a period of 3 to 5
years. The unpaid balance is discharged
after the payment plan is
completed. Payments are made from
each paycheck to the Chapter 13
Trustee, normally through employer
wage deduction.
A Chapter 13 is NOT a bill consolidation
loan, although many people look at it
that way. Although it is a similar concept, a
bill consolidation loan is money actually
loaned to you to repay other creditors. In a
Chapter 13, no money is loaned to you
because you make your monthly payments
to the Trustee, who disburses the money
among your creditors.
Your priority claims are paid first in a
Chapter 13. Priority claims include debts
for things like taxes, child support, etc.
The amount you owe unsecured
creditors, like medical bills, credit cards,
etc. can normally be paid back as low as
5¢ on the dollar. (This figure is not written
in stone. It is subject to change depending
on your individual State laws, type of debt
it is, as well as the income and budget of
the debtor.)
You are normally allowed to keep
your home, car and everything else you
own when you file a Chapter 13 as long as
you make regular payments to the Chapter
13 Trustee.
Steps That Occur in Filing a
Chapter 13 Bankruptcy
When your bankruptcy petition is
prepared and signed by you, it is filed with
the Bankruptcy Court. You are assigned a
case number and a Trustee. Normally,
there is only one Chapter 13 Trustee who
makes decisions on all Chapter 13’s filed
in his/her jurisdiction. In a Chapter 7, there
may be more than one Trustee, called an
“interim” as well as a “trustee.”
Your attorney or paralegal will
also file a Chapter 13 Plan with your
bankruptcy petition that details the
amount of your monthly payments and
the length of time you are going to be
in the Chapter 13 Plan.
This amount you pay each month
to the Trustee is determined by the
amount of money you currently make
and how much money you need to live
on each month. A good Chapter 13
bankruptcy attorney or his paralegal is
skilled at balancing these two figures
so you can easily afford the Chapter 13
payment each month. It is not to the
advantage of the attorney or paralegal
to give you a payment you can’t afford.
This would cause problems later down
the road. So don’t be afraid that your
payment will be too high for you to
afford.
The Trustee will send a notice to
all the creditors (people/companies you
owe money to.) This notice is normally
sent 5 days after you file your petition.
The court will normally send you
a notice informing you that you are
eligible to file bankruptcy. You don’t
have to do anything with this notice but
keep it in your personal file.
The Trustee will then send all
your creditors, including you, a notice
informing you of the hearing date when
you should appear in court. This
hearing is often referred to as the
“Meeting of Creditors.”
At your Meeting of Creditors NO
judge will be present. The Trustee will
ask you some of the same questions you
answered when you first filled out the
paperwork for the attorney or paralegal;
who originally prepared your bankruptcy
petition.
In actual practice, creditors rarely
appear at this hearing because they know
they will be getting paid through the
Trustee; however, a representative from
one of the companies you owe, or a
person you owe, may also show up at this
meeting, but they normally only appear to
ask where the secure item is and if it is
insured.
After the Trustee has approved your
bankruptcy, you are required to pay your
first Chapter 13 payment. Your payment
must be in the form of a money order or
cashier’s check. No cash is accepted.
The Trustee will normally provide you
with information on how to contact his/her
office with any questions as well as an
address where to mail your payments.
At this time, you may want to set up a
payroll deduction so you don’t have to
worry about writing a check every month.
Because a payroll deduction may take 4-6
weeks before it begins, you need to continue
making payments to the Trustee on
your own until the wage deduction starts.
If you get behind in payments, your case
could be dismissed and you will have to
start all over again.
Finally, a Confirmation Hearing is
scheduled but you normally do not appear
in court. Your attorney normally appears
on your behalf to simply confirm that you
are approved to be in the Chapter 13 plan.
Changes in Payments During a
Chapter 13 Bankruptcy
Nothing stays the same. During
the 3-5 years that you are making
regular payments to the Chapter 13
Trustee anything could happen. You
may lose your job. Your spouse may
lose their job. You may have a new
baby. You may inherit some money.
Your old car may conk out and you
have to replace it. A million things can
happen, which means your Chapter 13
payment can be lowered or raised
depending on the circumstance.
Many people, when something
occurs where they cannot make a
Chapter 13 payment one month, will
simply not pay it. This is a very bad
idea. All you have to do is contact your
attorney and ask them to file a Motion
to Modify the Chapter 13 Plan. You
will need to go to the office and supply
the attorney with new, updated income
and budget information, which explains
why you cannot make your normal
Chapter 13 payment, but it is well
worth the 2 hours of time.
If you need to go into debt and
purchase something on credit while
you are going through a Chapter 13
bankruptcy, your attorney can file a
Motion to Incur Debt for you. This will
allow you the needed money to purchase
the item. (Example: Sell one car
and purchase another one.) | 
Disclaimer
