Frequently Asked Questions About Bankruptcy-Part Three

28 Sep Frequently Asked Questions About Bankruptcy-Part Three

Once again, I’ll try and answer some of the questions most often asked by my clients about the banrkuptcy process, continuing the procedural questions from Part Two, this time focused on Chapter 13 cases. Bear in mind, sometimes the answers depend on individual circumstances, and you should still seek the advice of experienced bankruptcy counsel in your area. There is no substitute for the advice of someone who is familiar with bankruptcy law and procedure in your jurisdiction.

1.If I file a Chapter 13 case, when do I have to start making payments? Your first payment is due to the Chapter 13 trustee 30 days after your case is filed with the court. Check with your attorney to make sure that you send the right amount and send it to the right address. Where I practice, Chapter 13 trustees will also send you a letter and some information concerning payments. Be careful to start your payments on time; some courts and trustees will automatically dismiss your case if you fail to make that first payment.

2.How long is a Chapter 13 payment plan? If your income is above median income for your state (for a family of similar size) your payment plan will be 60 months. If your income is under median, a Chapter 13 plan may be 36 to 60 months, depending on how much debt you have to pay and how much disposable income you have. Of course, in either case, if your income is sufficient to pay off all your debt in full in less time, you can certainly do that.

3.Who decides how much my Chapter 13 payment will be? You make the first proposal, proposing a payment plan based on what you need to pay (like taxes), what you want to pay (like catching up your house or car payments), and what you think your budget will allow you to pay within your budget. Sometimes the court and the trustee in your case will agree that the initial plan that you file is sufficient. More often, changes will have to be made. The trustee will have the benefit of claims filed by your creditors, which you may have to estimate, and differences in those amounts may require changes to your plan. Of course, the court and the trustee can challenge the reasonableness of your expenses. The trustee’s job is to balance the feasibility of a payment plan with the fairness of that plan to your creditors in recommending a plan for confirmation. If disputes cannot be resolved any other way, the judge will decide.

4.What if I can’t make my Chapter 13 payments? This is another one of those “it depends” questions. If you have run into a short term problem, for example, an illness that requires you to be out of work for a few weeks, you may be able to apply to the court for a moratorium in payments. If skipping two or three payments won’t resolve the issue, you may be able to modify your plan to lower your payments. If there is no way for you to confortably make any payment, you may decide to dismiss your case, or convert it to a Chapter 7 case. Which of those options is best will depend on your individual circumstances and probably how long you made payments in the Chapter 13, and how much of your debt has been paid. Finally, if you have almost completed your Chapter 13 payments and something happens to make it impossible to complete your plan the court can grant you a discharge anyway, called a hardship discharge. The guidance of an experienced bankruptcy attorney will help you decide whether a moratorium, modification, dismissal or conversion best suits your needs.

5.What debts are included in my Chapter 13 plan? That one depends on where you live. In some districts you will pay pretty much any debt, including mortgage payments, through the Chapter 13 plan. In others you will pay your mortgage payments directly to the mortgage holder, but pay pretty much anything else through the plan. There are some exceptions, but they are minor. For example, one of the trustees I know will let you pay a car payment outside the plan only if you have less than six months to pay. Of course, you will pay your ordinary living expenses, like insurance, utilities, and so forth, outside your plan.

These answers are no more than broad guidelines, and are no substitute for the advice of an experienced attorney who knows your individual situation. Now that you know a little more about Chapter 13 (and it is a very little), make an appointment to see an attorney in your area.

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