INDIVIDUAL DEBT ADJUSTMENT

Chapter 13 of the Bankruptcy Code provides for the adjustment or reorganization of debts of an individual with regular income. Chapter 13 allows a debtor to keep his property and pay his debts over time, typically between thirty-six to sixty months.

Chapter 13 is also known as a wage earner's plan. It permits an individual with regular income the opportunity to repay all or a portion of his debts over an extended period of time. If the debtor's current monthly income is less that the state median, the plan will run for at least three years, unless the debtor's current monthly income is less that the state median, the plan will run for at least three years, unless the debtor's complete debt is paid in full prior to that time frame or unless the court shortens the period for cause. If the debtor's current monthly income is greater that the state median, the plan generally must be for five years, unless the debtor's complete debt is paid in full prior to that time frame or unless the court shortens the period for cause. In no event can a plan exceed five years. The law forbids collection activities upon the debtor or his property while he is in his repayment plan.

ADVANTAGES OF CHAPTER 13

Chapter 13 offers individuals several advantages over liquidation under Chapter 7 of the Bankruptcy Code. Perhaps most significantly, Chapter 13 provides an opportunity for an individual to save his home from foreclosure. By filing Chapter 13, an individual can stop a foreclosure proceeding and cure mortgage arrears over an extended period of time. However, a debtor must continue to make regular mortgage payments as they become due once the bankruptcy case is filed.

Another advantage of Chapter 13 is that it permits for the rescheduling of other secured debts, other than mortgages on the debtor's principal residence. This can include auto debts, purchase money security debts, title loans and other secured debts of any nature. This method can often extend the pay back time as it relates to the contracted pay back time. An auto finance company may receive less per month, but over a longer period of time. This can be a great source of relief for a debtor struggling to make ends meet. This provision also protects a co-debtor provided that the debt is paid back in full. The Chapter 13 acts like a consolidation loan under which the individual makes monthly payments, which are then distributed by the Chapter 13 trustee to all creditors who have filed claims. An individual will have no direct contact with creditors while he is under the Chapter 13.

CHAPTER 13 ELIGIBILITY

Any individual, even if self-employed or operating as a sole proprietary business, may file for Chapter 13 provided certain eligibility requirements are satisfied.

• Debt Limits (secured debts cannot exceed $922,975.00; unsecured debts cannot exceed $307,675.00
• An individual cannot file Chapter 13 or any other chapter if, during the 180 days preceding the instant filing, the prior bankruptcy case was dismissed due to the willful failure of the of the debtor to appear before the court or to comply with orders of the court or was voluntarily dismissed after creditors sought relief from the automatic stay to recover property under which the had liens.
• An individual must have received a briefing from a credit counseling agency approved by the Executive Office of the United States Trustee with 180 days of filing and a certificate of said completion must be filed with the court within 15 days of filing bankruptcy. If a debt management plan is developed during the required counseling, it must be filed with the court as well.
• Must have filed Federal and State income tax returns for the four years prior to the date of filing. If the returns are not filed, the case will be dismissed.
• Can only receive a discharge under Chapter 13 if there was no prior Chapter 13 discharge within two years of filing the present case; or if there was no prior Chapter 13 discharge within two years of filing present case; or if there was no prior Chapter 7 discharge within the last four years prior to filing the present case.
• Must be an individual; no incorporated businesses can file Chapter 13.
• Must propose a plan that complies with the requirements of the Bankruptcy Code.
• Must commit all disposable monthly income toward the repayment of debts.
• Must complete a Personal Financial Management course prior to receiving a discharge and a completion certificate must be filed with the court.
• Must remain current on all domestic support obligations while the case is pending.

BONUS INFORMATION

Debtor must pay back to the unsecured creditors an amount equal to at least what they would have received had the debtor filed a Chapter 7 bankruptcy case. In other words, at least the value of the debtor's non-exempt property.

DEBTS THAT SURVIVE CHAPTER 13

• Student loans (there is an exception in extreme hardship cases)
• Fraudulent debts; based upon theft, breach of a fiduciary duty.
• Domestic Support Obligations (child support, alimony)
• Criminal fines and penalties
• Recent taxes (taxes incurred within three years of filing are not discharged if the case does not complete)
• Personal Injury debts incurred as the result of driving while intoxicated (this applies to personal injuries only, not to property damage)
• Civil Judgements for personal injuries or wrongful death caused by a willful and malicious act.
• Creditors not listed or not noticed properly

Super -Discharge still applies to:

• Marital debtors created in a divorce or settlement agreement.
• Debts incurred to pay a non-dischargeable debt.
• Court fees
• Debts that could not be discharges in a previous bankruptcy.

JOINT DEBTS UNDER CHAPTER 13

Adebtor can protect a co-debtor in a Chapter 13 bankruptcy case by agreeing to pay back that one creditor in full, 100%. For as long as the debtor is proceeding with the Chapter 13 and provided that specific debt is being paid back 100%, the co-debtor will forever be protected. If a debtor proposes to pay a creditor back less than 100% on a joint debt, the creditor can enforce the difference against the co-debtor.

In common property states, both spouses owe the debt incurred during the marriage despite which spouse actually incurred the debt.

In non-community property states, each spouse is treated separately as it relates to liability on the debt. A creditor cannot seek to collect from a spouse who did not personally incur the debt.

SECURED DEBTS IN A CHAPTER 13

A debtor can surrender the secured item and schedule to repay the remaining debt as unsecured.

Reduce the secured debt to the properties actual value (known as "Cramdown")

• Can't cramdown an auto debt if the car was purchased during the thirty (30) month period before the bankruptcy case was filed.
• Can't cramdown a secured debtor on personal property purchased within one (1) year of the bankruptcy case filing.

HOW CHAPTER 13 REALLY WORKS

A Chapter 13 Bankruptcy case begins with the filing of a bankruptcy petition with the Clerk of the U.S. Bankruptcy Court. The debtor must also file with the court:

1. Schedule of assets and liabilities.
2. Schedule of current income and expenses
3. Schedule of executory contracts and unexpired leases
4. Statement of financial affairs
5. Statement of monthly income and expenses as well as any anticipated increases in income or expenses after filing

Debtor must also file a certificate evidencing completion of a credit counseling briefing which must have occurred within 180 days of the filing of a bankruptcy case. If a debt management plan was prepared during the credit counseling briefing, that plan must be filed with the court as well.

Debtor must file evidence of payment advices that were received within sixty (60) days of the filing of the bankruptcy case.

Debtor must provide the Chapter 13 trustee with evidence of tax filings for the four years prior to the filing of the bankruptcy case as well as tax returns which become due after the case is filed.

When Chapter 13 bankruptcy case is field, an impartial Chapter 13 trustee is appointed to administer the case. The Chapter 13 trustee both evaluates the case and acts as a disbursing agent, collecting payments from the debtor and making payments to creditors.

Filing the Petition under Chapter 13 "automatically stays" most collection actions against the debtor and the debtor's property.

In a Chapter 13 case, to participate in distributions from the bankruptcy trustee, unsecured creditors must file their claims with the court within 90 days after the date set for the meeting of creditors. A governmental creditor has 180 days from the date the case is filed to file their proof of claim.

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