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Get Answers To FAQs About Chapter 13 Bankruptcy
Bankruptcy can be confusing for anyone unfamiliar with what it is or how it works. Read the answers to the most common questions people have:
1. In what way is a Chapter 13 bankruptcy different than a Chapter 7 bankruptcy?
A Chapter 7 bankruptcy is the discharge of debts (with the exception of certain tax liability, student loans and child support obligations) without any payments being made to creditors. A Chapter 13 bankruptcy, on the other hand, is for individuals or married couples only and involves payment on the debt (through what is referred to as the Chapter 13 plan) over a period of three to five years, often with unsecured creditors receiving a small percentage of what you actually owe.
2. Must my Chapter 13 plan be approved by my creditors?
Only the US Bankruptcy judge must approve (“confirm”) the plan. If the plan is properly prepared there should be no reason for a creditor to oppose a plan. But, even if a creditor does oppose a plan, it is up to the judge to determine whether it should be confirmed.
3. Must all of my debts be paid through the Chapter 13 plan?
Secured debt on which you are current, such as car loan payments and mortgage payments, may be paid directly to the lender, outside of the plan. All other debt is usually paid through the plan. Depending on the amount of your disposable income and level of assets, you may end up paying a small percentage of your unsecured debt through the plan.
4. What determines whether the bankruptcy court will approve my Chapter 13 plan?
The plan must: be proposed in good faith, provide for full payment of arrears on secured debt (unless you are surrendering the property secured by that debt) and payment of unsecured debt equal to the amount that the creditors would receive in a Chapter 7 filing through the liquidation of any non-exempt assets. You must also commit your disposable monthly income to the plan.
5. Are taxes paid through the plan? Are student loans paid through the plan?
Taxes that you owe and outstanding student loans that are not in a deferral status are paid through the plan. If the plan does not provide for full payment of those debts, they will not be fully discharged when the plan is completed and payments on the balances will then need to be made directly to the creditor.
6. Can I include my utilities such as the gas and electric bills in my Chapter 13 plan and, if so, what happens to my service?
Past due utility bills can be included in the bankruptcy and will be discharged along with the other unsecured debt. A new account will be set up, and you will then be responsible for payment for the service used after the filing of the bankruptcy.
7. If I co-signed a debt with another person, how does my Chapter 13 bankruptcy affect that other person?
The filing of the Chapter 13 bankruptcy would stop any debt collection actions against that other person and will not affect that person’s credit history. If the debt is not paid in full through the plan, that debt will be discharged against you but the creditor may pursue payment of the balance of the debt against the co-debtor upon completion of the plan.
8. Can any of my creditors continue collection activity against me while I am in a Chapter 13 bankruptcy?
Upon the filing of the bankruptcy, there is an “automatic stay” imposed on all creditors which ceases all collection actions, including court proceedings, foreclosures, wage garnishments, etc. That stay remains in effect throughout the pendency of the bankruptcy unless the creditor is allowed “relief from automatic stay” by the bankruptcy judge. A creditor must have “cause” to be granted relief from the automatic stay and if your Chapter 13 plan is properly prepared and you remain current on the required payments, there should be no reason for any creditor to be allowed relief from the automatic stay.
9. What will happen if I am unable to make my plan payments to the Chapter 13 trustee?
The Chapter 13 trustee can file a motion with the bankruptcy judge requesting that your case be dismissed. Your attorney can file an opposition to that motion and either work out an agreement with the trustee to get current on your plan payment arrears or request additional time from the judge by which to get caught up on the payments. If you are unable to make the plan payments going forward, you have the option of letting the case be dismissed, converting it to a Chapter 7 bankruptcy case or seeking to have the payment amount modified.
10. Do I still need to make my mortgage payments after I file a Chapter 13 bankruptcy?
If you want to keep your house, you will need to make all mortgage payments directly to the lender beginning the month after the filing of your Chapter 13 bankruptcy. You will also need to keep it insured and remain current on the real estate taxes.
11. Can the terms of my mortgage be modified in my bankruptcy?
There is no provision under the Bankruptcy Code for the modification of the terms of a mortgage. However, if you have more than one loan on your house, you may be able to change a second (or third) loan from being secured to unsecured. This strip off of the mortgage would then treat that loan the same as credit card and other unsecured debt, often being paid off at a small percentage (as low as 1 percent) of the outstanding debt amount.
12. What will happen if I miss any payments on my mortgage or on my car loan?
If you miss mortgage or car loan payments after the filing of the Chapter 13 bankruptcy, the lender may move for relief from stay. If allowed, the lender would then be able to proceed with foreclosure of your house or repossession of your vehicle. As with the missed payments to the Chapter 13 trustee, your attorney can try to work out a repayment schedule with the lender or request that the judge allow additional time for you to get current on those payments.
13. How often do I have to make my plan payments?
The plan payments commence within 30 days of the filing of the plan and are then made every month. In Massachusetts, the Chapter 13 trustee does not require that the payments be made at any specific time of the month; all that is required is that you make the plan payment each month.
14. For how long do I have to make my plan payments?
The period of the plan payments is between three years (36 months) or five years (60 months). The length of the plan payments is determined by a few factors: whether or not you passed the means test (a debtor who fails the means test must make the plan payments over the five-year period) and whether you have the ability to make the required monthly plan payment over the shorter three-year period or you need the longer five-year period which would afford you a lower monthly plan payment.
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When representing consumer debtors in connection with bankruptcy, the Law Offices of Ira C. Yellin, LLC, is a debt relief agency as defined by the Bankruptcy Code, 11 USC § 101(12A).