The Chapter 13 bankruptcy, also called a wage earner’s plan, may be a solution for those looking to keep their car or home from the bankruptcy process. It allows people with regular income to propose a plan to repay all or part of their debts. Under Chapter 13, you propose a repayment plan to make installments to creditors over 3 to 5 years. Individuals and small businesses that have not made vehicle or mortgage payments, or are facing an ongoing lawsuit, a Chapter 13 bankruptcy enables you to cure (make up) for missing payments. Chapter 13 bankruptcy is not available to partnerships & corporations.
The repayment is issued through what is called a “wage earner plan” and if your current monthly income is lower than the applicable state median, the plan will be for 3 years unless the court approves a longer period “for cause.” If your current monthly income exceeds the applicable state median, the plan generally must be for 5 years. During this term creditors cannot harass you or act to seize the asset unless they turn to the bankruptcy court seeking relief. Be mindful, if you have not made the bankruptcy payments or have let your insurance lapse on the collateral, a secured creditor can ask the court to lift the stay that is keeping them from seizing the asset.
Who Can Apply for Chapter 13 Bankruptcy?
Passing the means test isn’t required and the eligibility requirements are simple: anyone, including those self-employed or operating an unincorporated business, can file for Chapter 13 bankruptcy providing the person’s unsecured debts are under than $394,725 and secured debts are under $ 1,184,200. These amounts adjust occasionally reflecting consumer price index changes - call us for the latest updates on these dollar levels.
The Advantages of Chapter 13 Bankruptcy in Texas (none of which are available under Chapter 7)
- While your home is protected from foreclosure you will have up to 5 years to cure your mortgage.
- You might be able to “strip off” (eliminate) a second mortgage from your property’s title and not have to make those second-mortgage monthly payments if your home is worth less than your first mortgage balance.
- If your car loan is at least 910 days & the car’s value is less than the debt you owe on the car, Chapter 13 bankruptcy allows you to “cram down” or reduce the principal balance of debt on the car to its current value.
- You’ll be protected from tax collection (including wage garnishment) by the IRS, while you pay any portion of back income taxes that can’t be discharged.
- While being protected from the extreme collection powers of support enforcement agencies, you will be able to catch up on your child and/or spousal support arrears
Chapter 13 Bankruptcy Process Outlined Including the Required Court Filings
Chapter 13 Bankruptcy : Credit Counseling Prior to Filing
Prior to filing Chapter 13 bankruptcy you are required to attend an online “credit counseling” with an approved non-profit agency where together you conduct a budget analysis. Fees for this vary but generally are approximately $25.00, please email or call me and I will provide you a list of qualified agencies here in Austin.
Chapter 13 Bankruptcy: File Petition, Statement of Financial Affairs, and Proposal Plan with the Court
Before I can file a case I will need a detailed list of your assets along with your liabilities. Additionally I will need bank statements, pay advices (payslips, 'pay stubs', or paycheck stubs) and tax returns. Some of these items are required with the court filing and some provided to your trustee. When filing a Chapter 13 petition, an impartial trustee is appointed to administer the case. Deborah B. Langehennig is the Trustee for Travis and surrounding counties. Ray Hendren is the Trustee for Waco and the surrounding areas and Mary Viegelahn is the Chapter 13 Trustee in San Antonio.. My having a sense of their management styles will serve you in pulling together an effective presentation of your proposed payment plan.
Bankruptcy law disclosure requirements can be tedious and frustrating but if you do not produce these items, it’s quite likely your case will be dismissed.. Full and proper compliance generally achieves the benefit of the discharge, making the gathering of the needed documents more than worth the effort. To recap some of the information that must be disclosed is:
- A listing of creditors with the amounts and description of their claims
- Details about your income, source, amount, and frequency
- Property(s) list
- Your monthly living expenses itemized, i.e., clothing, utilities, food, shelter, taxes, medicine, transportation, etc.
If married, gather this same information for your spouse, regardless of whether you plan on filing joint or separate bankruptcy petitions, or even if there will be one spouse filing. In situations wherein one spouse is filing, the income and expenses of the spouse not filing is also required so that all parties, the trustee, the court, and the creditors can evaluate the financial position of the household.
Once a case is filed (electronically), an injunction or “automatic stay” goes into effect preventing creditors from pursuing any further action in collecting or recovering on debt owed without first obtaining permission from the bankruptcy court.
You're required to notify creditors, which is one of the services I perform for you. Violations of the injunction or “automatic stay” can result in serious consequences to the creditor. Most larger debt collectors and home mortgage businesses will not disregard an automatic stay and attempt debt collection without first obtaining permission from the bankruptcy court.
Unfortunately, and occasionally smaller debt collectors lacking experience with the power of the bankruptcy court may pursue debt collection. Contact my office immediately so I can use the power of the court to stop the illegal actions.”.
I frequently appear before all the judges of the Western District of Texas Bankruptcy Court. The judges, like the trustees, have their own unique management styles and opinions with respect to legal interpretations. The different mindsets that make up the Court though slight can prove costly, depending on the facts and their presentation.
The first payment of your monthly proposed plan is due 30 days after your case is electronically filed and proceeds accordingly for the term of the plan. Should you miss any required payments prior to your plan being confirmed by the bankruptcy court, the court will dismiss your case and with it, all protections of the bankruptcy automatic stay.
Chapter 13 Bankruptcy: Your “Proposed Plan”
In Chapter 13 Bankruptcy, in addition to the other required documents, a “Plan” needs to be filed defining a repayment schedule to the creditors. The plan payment is drawn from your owned assets, the types of debts, level income, and built within a framework of laws focused on the treatment of each specific type of debt. Certain debts referred to as “priority” debts — such as child support arrears and or newer income taxes — must be paid in full over the term of your plan. Some, but not all, of the terms used to formulate your payments:
- For a minimum of 3 years or 36 months and a maximum of 5 years or 60 months you are paying all of your disposable monthly income into the plan depending on the facts of the case and your household income. Bankruptcy Court recognizes disposable income as your net income (gross income minus tax withholding) minus reasonable and necessary living expenses.
- Certain secured debt creditors (mortgage and vehicle arrearages, past due child support or spousal support, taxes less than 3 years old, and a few more) must be paid 100% through your Plan. Mindful of this you need to have sufficient disposable income to be able to do this in the required time frame.
- Unsecured creditors will be issued a percentage on the dollar, determined by how much money remains after certain bills are paid. These “general unsecured” debts are typically paid only if there is money remaining after the payment of the priority and secured debts. Generally this is not the case and the unsecured creditors are not ever paid.
Chapter 13 Bankruptcy: Meeting Creditors & Objections
Chapter 13 Bankruptcy: Section 341: Meeting of Creditors
What is commonly referred to as the section “341 meeting” takes place within the first 45 days of the case. The Trustee reviews your Chapter 13 bankruptcy documents and establishes you understand the process, your duties, and your responsibilities. In Austin, Texas, if your documents are in full compliance, and is feasible, the trustee commonly recommends confirmation of your plan.. If this happens, you may not need to return to court for the confirmation hearing. Attendance of creditors at this meeting is uncommon and the meeting generally goes by quickly with documents in good and proper order.
In a Chapter 13 bankruptcy case the trustee affirms the case is being filed in “good faith” and that your monthly plan payment reflects a maximum effort and is at the highest level possible, to maximize the benefit to the creditors. Once the court confirms your plan the trustee generally wants to see you succeed with your plan because that’s how the trustee and creditors get paid.
Chapter 13 Bankruptcy: Objections and Claims Litigation
Creditors can object to your plan and file a “proofs of claim” with the court in order to be paid from your Plan. This can cause your proposed plan to become infeasible and necessitates I act and object to these claims (assuming we have grounds for doing so) or amend your plan to include the correct amount.
It’s also important to know creditors can file a claim that is time-barred in the Texas state court. This debt is commonly referred to as “Zombie Debt”. The creditors are required to attach something to the claim indicating indebtedness, and when the last charge (payment) on the account was made. The creditor failing to do this is grounds to object to the claim and have it disallowed.
With respect to breach of contract, the statute of limitations in Texas is 4 years. If the last charge (payment) exceeds beyond 4 years prior to the filing of the bankruptcy, this claim may be denied by the Court. At the same time creditors must file any claims within 90 days of the creditor’s “341 meeting” and any late claims can be denied.
It’s generally neither prudent or wise to attempt to have a mortgage or a vehicle claim denied on being late since the lien still survives the Chapter 13 bankruptcy. A late claim filed by an unsecured creditor will be denied and its percentage will be divided among the creditor who filed claims. . A silver lining might be how this can also result in getting past bankruptcy sooner as your total gross plan payments will be applied to the other creditors resulting in paying the plan off sooner.
Chapter 13 Bankruptcy: Plan Hearing, Modifications, & Discharge
Chapter 13 Bankruptcy: Plan Confirmation Hearing and Plan Payments
Several weeks after the creditors’ “341 meeting”, the court will hold a hearing centered on the confirmation of your proposed Plan. View this as a “graduating event” that serves your interest and attendance is not required if the trustee is recommending approval of your plan (something we will know ahead of time). The trustee commences issuing disbursements to the creditors after the order of confirmation is signed by the court.
Chapter 13 Bankruptcy: Modification or Conversion
It’s commonplace to have modifications made to confirmed plans. Should you lose your job while in chapter 13 bankruptcy or fail to pay tax debt incurred after the filing of the chapter 13 bankruptcy it’s possible to revisit the bankruptcy court and attempt to revise the plan. Generally, the court will want to see a valid reason for a modification and solid plan to catch up. If catching up appears not possible, you may consider converting the Chapter 13 case to Chapter 7 Bankruptcy. Of course, you still have to qualify to file a Chapter 7. An updated budget will be required, and a new “341 creditors meeting” with your chapter 7 trustee. Thus, if you cannot catch up with your current payment plan, then this pivot is sometimes viable but know you may lose the property you were seeking to keep with the chapter 13 bankruptcy.
Chapter 13 Bankruptcy: Discharge
Once you have successfully reached the end of your Chapter 13 payback plan, the remainder of non-priority, unsecured debt is discharged or wiped out. Filing a motion for entry of discharge order requires a 2nd online class and you should be current with your mortgage and have paid your vehicle in full - when entered. The term “discharge,” does not eliminate the debt, it denies the creditor’s ability to legally pursue collection of the debt. . You don't have to pay back debts that have been discharged and creditors are also prohibited from trying to collect debts after the case is finalized.