Chapter 13-Part 2

Written by jessica Alba

In the first part of this article, you learned a little bit about why you might want to choose chapter 13 bankruptcy over chapter 7, why you will definitely need a lawyer, seeking the services of a consumer credit counselor, and laying all of your financial information, good and bad, before the court. In part two, you will find out what paperwork the court will be anticipating, how you qualify, a hearing you will have to attend, how your plan will work, and what happens with a chapter 13 discharge.

It Takes a Tree

When you are getting ready for federal bankruptcy court, you are going to need to have a bunch of forms filled out and ready to go. In preparation for your day in court, you are going to need to go through ALL of your financial documents and prepare:
1.   Schedules of Assets and Liabilities
2.   Schedule of Current Income and Expenditures
3.   Schedule of Executory Contracts and Unexpired Leases
4.   A Statement of your Financial Affairs

If you have tax returns, the court will need to see the most recent one, in addition to any you have to file during the course of the bankruptcy proceeding. (If you have neglected to file taxes altogether, you will not be able to file bankruptcy, until you get that paperwork together.) Your paperwork will not only include what you have written down. The court will want to see proof of everything you are claiming. According to www.uscourts.gov, you will need to include this information:

1. A list of all creditors and the amounts and nature of their claims;
2. The source, amount, and frequency of the debtor's income;
3. A list of all of the debtor's property; and
4. A detailed list of the debtor's monthly living expenses, i.e., food, clothing, shelter, utilities, taxes, transportation, medicine, etc.

In the end, it will seem like an entire tree was used just for your information alone. But, in the end, it will be worth it, if you want to save your assets and/or your business.

Making the Grade

Probably the first question everyone asks is whether he/she is in enough financial difficulty to qualify for chapter 13. If you are concerned about the amount, it is subject to change periodically, according to the consumer price index. But, at the time of this writing, unsecured debts could not equal more than $336,900. Secured debts could equal a little more than $1,010,000. For some, this seems like a lot. But, remember this is for both personal and business bankruptcy. For this reason, many partnerships and corporations will not qualify. Instead, they will have to consider chapter 11 bankruptcy.

However, if you have filed for bankruptcy in the last 180, and had your case dismissed, your current petition will be thrown out of court. Also, you will be required to prove that you have had credit counseling in the last 60 days, unless there are qualifying emergency circumstances.

Is it Enough?

As part of chapter 13 bankruptcy, you will be asked to make a plan to pay back your debts through the trustee. If you have back taxes or court fees, these are considered a priority debt and must be paid in full. Secured debts are the ones in which you still have the property that the creditor could take back. Usually this part of the debt is reduced to the current value. Finally, the unsecured debt would be like your credit cards.

But, you will have to have a meeting to discuss the debt with your creditors. If they do not think that your plan is fair under the circumstances, they can file a petition with the court. But, the debtor is required to pay as much as possible over a designated period of time.

Writing the Check

The court has put the chapter 13 bankruptcy plan in place. Now it is up to you. According to the terms of the plan, you will have to pay the trustee bi-monthly or monthly. In turn, the trustee will take that money and distribute it among your creditors.

However, since you can have your case dismissed or forced into chapter 7 bankruptcy, if you fail to make any of the payments, you might want to have the amounts taken directly out of your paycheck. Then, you know your debts will be paid as per the agreement.

Finally, while you are in chapter 13 bankruptcy, you cannot incur any new debt, without the approval of the court. Right now, you obligation is to get this financial mess cleared up. The court does not want you overextending yourself again, and defeating the purpose of chapter 13.

Completion of the Plan

Usually a chapter 13 plan last anywhere from 3-5 years. At the end of the time, as long as you have complied with the repayment schedule and done everything required by law, the court will discharge your debt. Now, you are free and clear to get that fresh start, hopefully make better financial choices, and have better opportunities so the court will not have to repeat this procedure in 8 years.

Of course, sometimes life throws a real curve ball, and you simply cannot repay the debts according to schedule. Maybe you have suffered a major illness and have astronomical medical costs. Who knows? But, if you are really doing your best and then something else comes up, you can apply for a hardship discharge. If you qualify, your debts may be forgiven, before the repayment plan is finished. But, it will not work for just any reason. The court must feel it is an emergency situation.

In the end, chapter 13 bankruptcy is supposed to help you get back on your feet, without losing your property. Whether it is personal or business, it gives you a chance to restructure your debt to a livable amount. Some businesses have come out of chapter 13 a stronger and more profitable enterprise. Some homeowners have been able to keep their houses and family intact. Even if you eventually have to convert it to a chapter 7 bankruptcy later, it buys you a little time and the opportunity to get that fresh start without having to forego your assets. It is worth a shot, for sure.