Chapter 13 Bankruptcy

The Chapter 13 Option

What is the right bankruptcy chapter for you? The choice is based upon the facts in each case. In most instances, Chapter 13 allows for the restructuring of debt that is, for example, secured by your home or car, tax debt or student loans. Chapter 13 cases are driven by the ability of people to make their regular monthly household expenses, mortgage and car payments, but, as well, plan payments that are calculated based upon the amount of mortgage, car or student loan payments in arrears, as well as any taxes owing from years prior. Engaging a Certified Bankruptcy Law Specialist means you are getting advice from a recognized expert among peers.

First, determine eligibility to file for Chapter 13 relief.
To allow for proper planning before an emergency arises, such as a looming foreclosure sale, tax levy, auto repossession, or wage garnishment.
Provide the required disclosures and complete all necessary paperwork.
Credit counseling and debtor education are required.
File a complete bankruptcy package, leaving no details out.
Attend a meeting of creditors conducted by a chapter 13 trustee.
An exit interview to discuss life after bankruptcy and what to expect.

Disclose, Disclose and Disclose Some More

Essential for a bankruptcy filing is that all “Assets, Liabilities, Income and Expenses” are disclosed. So, too, whether there have been any transfers or sales of any real or personal property over the last 2 to 4 years. Assets to be disclosed include all real, personal and intangible property, wherever located and whatever interest you may have. Liabilities, as we have summed up over the years, mean those debts you owe to “Everybody and anybody that you know, think you know, have an idea, inkling or have ever had a nightmare you owe money to.” Don’t forget those loans you guarantied or cosigned for, too. Income is just that, all sources of money that you receive on a regular basis from all sources and any money you have periodically or even one off have received. Just as you don’t want to leave anything out to the IRS, so too you don’t want to leave off the sources of income in a bankruptcy filing. Expenses are by far the category most people and business often have the least control or even awareness of the total amount spent. It is the line items of expenses that elude people and that often bring them to the brink of bankruptcy.

The Means Test

The Means Test came into being for bankruptcy cases in 2005 with the passage of the Bankruptcy Abuse Prevention Consumer Protection Act (BAPCPA). Although some would say it is a mean test, as it restricts who may qualify for chapter 7 and, therefore, must file a chapter 13. The Means Test is really a test of whether your annualized monthly income exceeds the median income in the Metropolitan Statistical Area in which you live and whether you must commit to a 3- or 5-year chapter 13 plan. To calculate the Means Test will require disclosing the sources and amount of all income, secured debt payments, the number and members of the household, tax obligations, life and health insurance payments, ongoing charitable contributions and a laundry list of other qualified expense.

Chapter 13 Trustee

Whereas the role of the chapter 7 trustee is to determine whether there are any assets that can be liquidated with the proceeds used to pay creditors. The role of the chapter 13 trustee is to see that the most amount possible is paid through a chapter 13 plan and that the chapter 13 debtor has proven that they have the means and ability to make those plan payments. Chapter 13 trustees do not have has broad of powers as a chapter 7 trustee, but their discretion is respected by the courts. They will not only review what has been filed but they will ask for up to 3 years of tax returns (and if you have a refund due, they will insist it be used toward plan payments). They may ask for 6 months of bank statements to evaluate not only your income and expenses. The Chapter 13 trustee will conduct the meeting of creditors that takes place usually within 30 days from the filing date. Creditors may attend. Few do, unless you have one that is really annoyed with their treatment before the filing. The trustee will rely upon the documents provided and the testimony given, but also what is said to them by creditors through emails or delivery of other documents. Again, the disclosures made at the time of filing and after are the keys to getting through the process. The chapter 13 trustee has no authority to liquidate property; however, a chapter 13 plan will be evaluated based upon the liquidation value of nonexempt assets and the amount that could be paid to general unsecured creditors under a chapter 7. Exemptions are taken against equity in property as are made available through state law and through the bankruptcy code. Each has different impacts for which experienced counsel should be sought to advise.

Dischargeable Debts – Generally

For the average person, most of the debt that is disclosed should be discharged in a chapter 13 following completion of all plan payments. One should consult with counsel if there are taxes owing or there are family law court orders or judgments. Some other judgments may not be discharged depending upon the underlying facts upon which the judgment was entered. Again, it is fact driven per case. Taxes over a certain number of years may be dischargeable and will be treated as general unsecured claims in a chapter 13 plan; however, in the event of outstanding taxes a “dischargeability analysis” is recommended to determine when or if certain taxes can be discharged. Filing even a day too soon can jeopardize the discharge of taxes. Omitting debts from disclosure could lead to those debts not being discharged. As we stated earlier, disclose, disclose and disclose some more.

Filing Again – Timing is Everything

So, you need to file a bankruptcy again. Generally, 8 years must pass between the date of the earlier filing and the next filing of a chapter 7. A chapter 13 may follow a chapter 7 sooner in time; however, this tactic, commonly referred to as a chapter 20 (chapter 7 plus chapter 13) is not for the faint of heart or the inexperienced practitioner.