A Chapter 13 bankruptcy actually starts to work when the debtor files a petition. The petition includes schedules, a statement of financial affairs and a counseling certificate by an accredited bankruptcy counseling organization. The debtor must file a statement of current monthly income and a projected calculation during the 3 to 5 year period of his or her disposable income. The debtor must file a plan to repay either all of the money owed or a portion of the money owed to the creditors during a 3 to 5 year period.
The Chapter 13 Trustee
A Chapter 13 Trustee is appointed by the Court. The Trustee schedules a meeting within approximately 20 days. At the meeting the debtor is required to answer questions under oath regarding his or her financial affairs and the propriety of the proposed plan and whether it is viable. If the Trustee approves the plan, it is then submitted to the court for court approval. The plan must provide for payments of specific amounts to the Trustee on a monthly basis. The Trustee, after receiving these funds, distributes these funds to the debtor’s creditors pursuant to the terms of the plan.
In a Chapter 13 plan, if a creditor wants to participate in the distributions of the funds the Trustee has received from the bankruptcy estate, the creditor must file a claim with the bankruptcy court within 90 days after the first date set for the meeting of the creditors.
Plan Confirmation Hearing
In a Chapter 7 bankruptcy there is only one meeting of the creditors and if the Trustee is satisfied, the meeting ends and there is no second meeting. However with regard to Chapter 13 bankruptcy, there is a second meeting held to either confirm or reject the confirmation of the plan. If the Trustee finds the plan is not feasible, counsel for the debtor must redo the plan and resubmit it to the Trustee with the hope the Trustee will accept the amended plan. If the Trustee finds the plan is feasible, the court will usually confirm the plan. The Chapter 13 Trustee receives the funds under the plan. The creditors who filed claims under the plan will receive distributions pursuant to the terms of the plan paid by the trustee.
The debtor must make the regular payments pursuant to the plan to the Trustee during the 3 to 5 year period of the plan. If the debtor fails to make the payments to the Trustee, the Trustee will make a motion to dismiss the bankruptcy and the bankruptcy will be dismissed. Once the bankruptcy is dismissed the creditors can take action in the state courts involving the debtor.
When the debtor makes all the payments pursuant to the terms of the plan, he or she thereafter receives a discharge. The discharge releases the debtor from all financial obligations to the creditors listed in the discharge plan.
The are certain types of debts that are not dischargeable in a Chapter 13 bankruptcy. Among theses debts are some taxes, spousal maintenance (alimony), maintenance for the children (child support), debts arising from death or personal injury caused while driving while intoxicated or under the influence of drugs and criminal fines and restitution related to a criminal conviction.
Creditors who receive either all of the funds they are owed under the plan or a portion of those funds under the plan can no longer take any legal action against the debtors.
In most situations student loans are not dischargeable in bankruptcy. A student loan can only be discharged if the debtors can demonstrate the payment of the debt “will impose undue hardship on the debtor and the debtors dependents.” An individual seeking to discharge a student loan must bring an application to the court seeking a determination the student loan is dischargeable. However, even if a student loan is not discharged, the filing of the bankruptcy prevents the creditors from taking collection action with regard to the student loan. The filing of a Chapter 13 bankruptcy may allow the debtor to renegotiate the payment arrangements on the student loan.
Elliot S. Schlissel, Esq. has been practicing bankruptcy law for over 35 years. He is the managing partner of Schlissel DeCorpo LLP. The law firm represents debtors in foreclosure defense and helps debtors file bankruptcy cases and obtain mortgage modifications. They can be reached for a free consultation at 800-344-6431 or by e-mail at Elliot@sdnylaw.com.