![Free Consultations [checkmark] Low Fees | Toll Free 888-542-1900](/design/images/cta.gif){kind=small}
Detailed Explanation About Chapter 13
a. Concept
Chapter 13 is a debt repayment plan. It may work for you if you:
- have non-exempt assets that you don't want to lose
- are behind on your mortgage or car payment and want to keep your property from foreclosure or repossession
- make good income but cannot afford to pay off your debt
- need relief from certain debts that cannot be discharged in Chapter 7
- received a Chapter 7 discharge in recent years
You propose a plan to make a certain payment each month to a government-appointed officer called a trustee. The trustee will use that money to pay your creditors according to your repayment plan once it's approved by the court. Most Chapter 13 plans last between 3-5 years. During that period, you and your property are protected by the federal court from creditors as long as you fulfill your obligations under the plan. Typically, a person who completes a plan as approved gets to keep his or her property and receive a discharge of the unpaid balance of most types of unsecured debt.
To qualify for Chapter 13, you must have regular income. After paying your living expenses such as rent, mortgage, utility bills, groceries, gasoline and insurance, you must have some money left to enable you to make a payment into your plan each month. There are other restrictions as well, which is why you need to consult an experienced attorney.
Chapter 13 is an extremely powerful tool. In most cases, filing a case immediately stops foreclosures, repossessions, IRS levies, wage garnishments and collection lawsuits. They require a powerful commitment from you as well. You will be required to make regular monthly payments for several years in a good faith effort to repay as much debt as you can afford. A well designed plan will save your home, car and paycheck. A poorly designed plan by an inexperienced or ineffective attorney will cost you money, time and aggravation without helping you with your financial issues.
b. Process
As in all bankruptcy cases, filing of a Chapter 13 case usually triggers immediate court protection known as the "automatic stay." It means that most collection actions such as lawsuit, judgment, garnishment, foreclosure, repossession and harassment against the debtor must stop. Under certain circumstances, however, the stay may be limited or does not exist at all.
The court sends notices of the bankruptcy to all listed creditors. The case is assigned a federal judge and a bankruptcy trustee. The trustee's primary job is to administer the repayment plan submitted by the debtor. In other words, to use the money paid by the debtor to pay creditors according to the plan.
The debtor starts making the plan payment 30 days after filing of the bankruptcy petition. All debtors are required to attend a meeting of creditors. Creditors have the right to attend the meeting and ask the debtor questions, but few show up. Typically, the debtor just meets with the trustee, who asks a few questions about the debtor's debts, assets, income, expenses and financial affairs. The main purpose of the meeting is for the trustee to determine if the plan meets the requirements of the bankruptcy law. If you elect to hire us to represent you, we will be with you at this meeting.
The court holds a confirmation hearing, where the trustee makes a recommendation as to whether the plan should be confirmed (approved). Your creditors and trustee may object to the plan being confirmed and request that the automatic stay be modified to remove them from the bankruptcy protection. An experienced attorney knows how to deal with these objections and motions.
Once the plan is confirmed, the debtor simply continues to make payment as required by the plan, until it is completed, at which point the court will issues a discharge, if the debtor is eligible. Your plan is not set in stone, however. If your financial situation changes after the plan is confirmed, your plan may be modified to meet your new situation. Modification requires the plan to be completely recalculated and a motion with supporting evidence to be filed with the courts. Again, this is where you want an experienced attorney representing you.
Common Questions About Chapter 13
- How much does a Chapter 13 cost?
In the greater Chicagoland area, most attorneys charge $3,500 for an entire Chapter 13 case. This is a flat fee approved by the court that covers you from filing through discharge for all ordinary Chapter 13 representation. Please, don't believe anyone advertising "low fee" Chapter 13 cases, as almost all attorneys use the court's flat fee agreement.
In most cases, the attorney's fee does not need to be paid in full upfront. A majority of people pay a small portion of the fee upfront, in either a lump sum or installments, with the balance included in the Chapter 13 plan payment.
In addition to the legal fee, one must also pay the court a filing fee of $274, which is the same across the country by federal law, and certain expenses, typically under $150. The filing fee and expenses are usually paid upfront.
- How much is my monthly payment going to be?
How much is your mortgage payment? How far behind are you? How much do you owe on your car? Etc., etc., etc... Plan payments vary from case to case, depending on a number of factors such as the types and amount of your debt, the value of your assets, the length of the plan, and your income and expenses both before and after filing, etc. Because a lot of information and documents are needed in order to prepare a Chapter 13 plan, it is often impossible to tell during the initial interview how much a plan payment will be.
The main purpose of the free consultation with our office is to determine if a Chapter 13 plan will work for you. Once we determine it will, our primary job is to ensure that your plan payment is as affordable as the law permits while protecting your assets and getting you to discharge as quickly as is feasible. This is why you meet with an experienced bankruptcy professional to prepare your plan.
- Do I have to pay all of my debt?
Most people who file Chapter 13 do not have to pay off their debt. Usually, secured debt such as mortgage arrears and car loans must be paid in full in order for the debtor to retain the collateral (the house or car), while only a portion of the unsecured debt such as credit card debt and medical bills needs to be paid. The percentage of the unsecured debt to be repaid varies from case to case, depending on the facts of each case.
- Can a plan be rejected?
Yes, and many filed with the court are. A Chapter 13 plan must satisfy a list of requirements. In addition, the debtor must fulfill certain duties, e.g., attending the meeting of creditors, making payment under the plan, and providing certain documents. Failure to do those things could be grounds for denial of confirmation and dismissal of the case.
Our job as your attorney is to help you comply with the law and make sure your plan gets confirmed. We will prepare a plan for you that can be confirmed, walk you through the process and do everything within our power to make your plan work. Remember, we almost always put most of our fees into the plan payments, so we won't file a plan that we do not believe will be successful.
- What if my hours at work get cut, I lose my job, or I retire?
The bankruptcy law contemplates these situations in people's lives and often provides solutions. A plan sometimes can be modified in light of the change of circumstances; the payment may be reduced or the plan period may get extended. Other times it may be possible to convert the case to Chapter 7. We as your attorneys will help you analyze your situation, explain your options and recommend the best course of action.
Common Misconceptions About Chapter 13
- "Chapter 13 is not bankruptcy. It's a wage-earner plan."
Chapter 13 is bankruptcy. It is a chapter of the Bankruptcy Code and a "core proceeding" within the jurisdiction of the federal bankruptcy courts. It protects the debtor from creditors' collection actions, eliminates debts, and gets reported to the credit bureaus. You have seen the advertisements: "File for bankruptcy OR do a Chapter 13". They are simply not telling you the truth from the beginning.
- "Chapter 13 is like debt consolidation."
Chapter 13 works like debt consolidation in that you make a monthly payment to one agent, who uses that money to pay your creditors. But the similarity ends there. There are three major differences between the two.
First, in a debt consolidation program, you may or may not be able to get rid of the high interest on your credit cards and other unsecured debts. Many creditors require you to pay the principal in full. Most Chapter 13 plans, however, pay only a portion of the principal of unsecured debts, sometimes as low as 10%, interest free.
Second, debt consolidation does not give you any protection. Creditors are free to bother you. In a Chapter 13 case, however, you are protected by the federal court. No creditor may take any collection action against you or your property without an order of the bankruptcy court.
Third, a debt consolidation program ends when all of your creditors agree that they are satisfied. A Chapter 13 case ends when the federal court issues a discharge and tells the creditors that you are now legally free of your debts forever, whether your creditors are satisfied or not.
