What is the Chapter 13 Bankruptcy Process?
The Chapter 13 bankruptcy process should always begin with a bankruptcy attorney. Debtors should consult with an attorney to determine whether Chapter 13 bankruptcy is right for them.
Fees for Chapter 13
In the Central District of California, which includes Los Angeles, Orange County, and Riverside, the average Chapter 13 attorney fees are about $4000. The court filing fee is approximately $281. This court filing fee is subject to change, with the maximum fee amount set by the court. Although $4000 can be a daunting number in the face of bankruptcy, many attorneys will only take half of that up front plus the filing fee, with the remainder paid through the Chapter 13 payment plan (discussed below).
Documents Required to File Chapter 13
After the fees, the next step in the Chapter 13 process is to make sure all your documents are in order. To fill out the petition in the Chapter 13 case you will need everything from six months worth of pay stubs, tax returns for the last 4 years, mortgage statements, your list of creditors, insurance documents for your home and car, bank statements, vehicle information (mileage, value, amount owed), mortgage information among a number of other documents. Most attorneys should have a checklist of all the documents they will need to draft your Chapter 13 petition.
Drafting the Chapter 13 Petition
Using the documents you provided, your attorney will begin drafting the petition. When drafting the petition, your attorney will list ALL of your property and assets. This is something many debtors don’t understand. Many debtors will say “I don’t want to include my home (or my car, my student loan, or my [insert secured debt payment]) in the bankruptcy.” To bankruptcy attorneys, this statement doesn’t mean much. No matter what, all of your property is listed. The correct statement is “I want to continue paying my mortgage and car payments outside of the bankruptcy.”
The attorney will also input all of your debt, whether you are paying for it outside of the Chapter 13 plan or not. This will include all of your unsecured, secured and priority debts, such as back taxes.
Along with your property and debt, the attorney will calculate your income and expenses and complete the means test and your statement of financial affairs. In short, all of your financial information will be documented in the Chapter 13 petition.
When the attorney completes the initial draft of your petition, make sure you review it with your attorney. Provide any information that the attorney still does not have. If there is anything that relates to finances or property, you should make your attorney aware of it.
During the drafting and reviewing process, you and your attorney will come up with the Chapter 13 payment plan.
Chapter 13 Plan
When you and your attorney come up with the Chapter 13 payment plan, the amount of your payment will depend on the means test as well as your actual income and expenses. This plan must be proposed in good faith. You cannot simply state that you want to pay $100 a month for 5 years. Make sure your attorney has all of your income and necessary expense information computed correctly. Make sure your tax withholdings are correct (the trustee will keep your tax refund if your plan is not 100%). Once you and your attorney settle on a good faith proposal for the plan payment your case is ready to be filed.
Filing Your Chapter 13 Bankruptcy Petition
Before you have your attorney file your case, you should always review the entire petition one more time for any errors or incomplete information. Additionally, you will have to take your Credit Counseling Course. This course is done online or over the phone and takes anywhere in the neighborhood of 1 to 3 hours. When your attorney receives the certificate, your attorney can file your case.
Most bankruptcy attorneys will file the case online. They can receive your case number and your court information almost instantly. Keep the case number with you so that you can present it to any creditors who are still calling and harassing you. Eventually, creditors will have to stop calling if you inform them that your case is filed. They will additionally receive notice in the mail about your case.
After your case is filed, you must take the Debtor Education or Financial Management class.
Court Hearing 341 Meeting of Creditors
The next step is to attend your court hearing. This is normally 30 to 45 days from the date your case was filed. You must attend your court hearing. Trustees in the Central District of California require you to bring your first plan payment (that you proposed), your Social Security Card and Drivers License.
This hearing is for the trustee, the creditors, and you to agree on the plan payment. In some cases, the trustee or creditors may object to your proposal. This hearing is to determine any issues that any of the parties might have with your proposal. For example, you might have listed that you owe a creditor only $100, when it is actually $1000. Or the trustee might say that your property is worth more than listed and therefore the plan payment should be raised a few dollars.
Once there are no objections to your plan payments, then the Bankruptcy Judge can confirm your plan.
In many jurisdictions, a plan payment will not be confirmed unless you can show that you are paying on your secured debt payments. Even if you had mortgage arrears when the case was filed, the court wants to see that you at least made the current month’s mortgage payment. They want to make sure that you are paying your necessary expenses. If you cannot afford your necessary expenses in the first month of your case, then you surely will not be able to make it through the 5 years of the Chapter 13 plan.
Remainder of the Plan
It is reasonable to assume that your finances will change during your Chapter 13 plan. If your income goes down, you should contact your attorney right away. The attorney can file a motion to modify or reduce your plan payments. In some cases, the attorney might even be able to convert your case to a Chapter 7. On the other hand, if your income goes up, the trustee might require you to pay more towards the plan.
Additionally, if you need to purchase a new car, or if you need to incur new debt, then you will have to seek permission from the court. In this case, your bankruptcy attorney can file a motion to incur debt on your behalf.
To keep it simple, if you have any financial issues during the course of your Chapter 13, you should always speak to your attorney first.
You must complete the Chapter 13 plan with any changes to it before you can receive a discharge. Always pay attention to any court documents you receive during your Chapter 13. Trustees will not call you to tell you that your plan payment changed. They will not set up an appointment to discuss your situation. Everything is done through the mail and the court. You must stay current with your Chapter 13 case. If you do all of this, then you will be on your way to a discharge of your debt. When the plan is complete, any debt remaining unpaid will be discharged and you can move forward.