What is a Chapter 13 Bankruptcy and how does it work?
Chapter 13 is one form of bankruptcy in which you obtain relief from your creditors and submit a plan to pay your debts over a period of not less than 36 months (unless you are paying everyone back 100%) and not more than 60 months. The law prohibits your creditors from trying to collect from you during the time you are in your Chapter 13 plan. You must make a regular payment to the Chapter 13 Trustee within 30 days after filing your plan and payments must be for the period of time designated in your plan. The money collected by the Chapter 13 Trustee is disbursed according to the plan after it is confirmed by the Court.
“My friend went through bankruptcy And he says….”
You have probably already received or will receive advice on what to do from well meaning friends and relatives who have themselves experienced financial problems. Just like no two people are alike, no two ‘Chapter 13 Bankruptcies’ are alike. Take the advice of your well-meaning friends and acquaintances with the proverbial “grain of salt.” If you have a specific question about anything related to your bankruptcy, make it your rule to ASK YOUR ATTORNEY, and he or she will try to provide you with an answer that applies to your special situation.
What may I expect from the Chapter 13 Trustee?
The Trustee’s main function is to administer the funds in your case. If you have a question about your plan’s receipts and disbursements you can go to www.ndc.org and review all payments coming in and going out. The Trustee and her staff cannot and will not give you legal advice.
What effect does filing under Chapter 13 have on lawsuits and attachments previously filed against me?
The filing of a Chapter 13 case automatically stays (stops) most debt collection lawsuits, attachments, garnishments, and other actions by creditors against either you or your property. A few days after the case is filed, a notice is mailed by the bankruptcy court to all of your creditors advising them of the automatic stay. The creditors may be notified sooner by either you or your attorney if necessary.
May I repay some of my creditors and not others under Chapter 13?
You cannot selectively pick and choose some particular creditors and decide to pay them “on the side”. All of your debts must be dealt with through your Chapter 13 plan. Any payment which you make to a creditor must be paid under the authority of the Court, by the terms of the law, and not by any personal desires. If you want to pay creditors, you must do so through your Chapter 13 plan.
How are debts that have been co-signed or guaranteed by another person handled under Chapter 13?
If a consumer debt which has been co-signed or guaranteed by another person is being paid off in full under the Chapter 13 plan, the automatic stay that was entered when the case was filed will prevent the creditor from collecting the debt from the other person. However, the creditor may ask the Court’s permission to collect from the other person the portion of the debt that is not being paid off under the plan. The Trustee will only pay in full those co-signed debts that are specifically provided for in your plan.
Are payroll deduction orders mandatory?
No. Employer deduction orders are no longer mandatory. You can keep your bankruptcy private from your employer. You may find it easier to have your employer deduct your plan payments from your paycheck. Additionally, if you fall behind in your plan payments, the judge may order your employer to deduct your plan payments from your paycheck.
How are creditors paid?
The money which you pay to the Trustee is used to pay expenses of administration, including payments to your attorney, and payments to your creditors. So that you will have some idea as to how the creditors are paid, you should understand that there are three (3) basic types of claims: priority (which are tax claims), secured (holding lien on property), and unsecured (consumer debt with no liens on property). Generally, we pay the administrative costs (your attorney’s fees) first, then secured creditors, then priority, and finally, unsecured.
Can I incur new debt after I filed my Chapter 13 plan?
You may find yourself in a situation where you need to incur additional debt after you have filed your Chapter 13 plan. You can ask the court for permission as long as the debt is for a necessary purpose.
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.
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.
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.
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