chapter 13 bankruptcy

In Chapter 13 Reorganizations, we help our clients prepare 3-5 year payment plans to adjust debts and emerge in stronger financial shape.

Just like the procedures in Chapter 7, a bankruptcy trustee is appointed to oversee your case and report to creditors.  However, the trustee’s job is not to administer your assets.  It’s to accept your payments according to a court-approved plan and distribute money to creditors.  Trustees also act as gatekeepers to make sure plans comply with the Bankruptcy Code, our rules on how bankruptcies work. 

Chapter 13 debtors receive the benefit of the bankruptcy automatic stay, which prevents creditors from taking any actions to collect a debt – like repossessing property, garnishing wages, or forcing a debtor to appear in state court to defend a lawsuit – without court permission.  And since the stay lasts for the life of the bankruptcy, unless a creditor gets court approval to lift the stay, you can enjoy peace from your creditors for months at a time.  Once the bankruptcy is completed, a debtor will receive an order from the bankruptcy judge discharging all debts that can be eliminated.  You may still have long-term debt like student loans or mortgage debt you will still pay directly.

Debtors who have previously filed for Chapter 7 relief have to wait at least 4 years from the date of their previous filing to proceed a Chapter 13 case and obtain a discharge of debts.

Why Chapter 13 Bankruptcy?

Our clients choose Chapter 13 cases for three main reasons:

(1) Keeping non-exempt property instead of turning it over to a trustee and creditors. 

Over time, some property can keep or increase its value.  That $150,000 home suddenly becomes more valuable and you build up equity in the home.  Our Kansas clients usually can keep an unlimited amount of home equity away from creditors.  But our Missouri clients cannot – they are limited to $15,000 of equity protection.  Those who want to keep their homes with excess equity can do so through a Chapter 13 plan.

(2) Some people have too much excess income to file for Chapter 7. 

Chapter 7 is means tested – that means that we must compare your income to your household size for the state in which you live.  If your budget slows a significant amount of money available to pay creditors, or your means test reflects “disposable monthly income” that is excessive, the government agency that oversees bankruptcies can try to force you into a Chapter 13.  We can explain the means test in more detail at your consultation and review your paystubs and other information to determine where you stand on a means test.

(3) Some debts can’t be dealt with in a Chapter 7 – or can be better managed in Chapter 13

Some of our clients qualify for both Chapter 7 and Chapter 13 relief.  How do we help them choose?  Simple, we look at the costs and benefits for both.  For instance, the Chapter 13 rules allow for a low fixed interest rate on car payments.  A Chapter 7 might sound nice, but a Chapter 13 could end up saving our clients thousands in interest on a car loan – enough to justify attorney’s fees and the costs of a Chapter 13 case.

Sometimes it is hostile student loan collection agencies or taxing authorities that are the biggest thorns in our sides.  By obtaining 5 years to restructure, we can get time to catch our breath and keep student loan creditors at bay.  And 5 years is longer than what the IRS will usually accept on installment agreements. 

All Chapter 13 clients have to complete a pre-fling and a post-filing online credit counseling course and appear once at a Meeting of Creditors required by the Bankruptcy Code.  There, our clients testify under oath about the accuracy of their bankruptcy paperwork and present proof of their identification and social security number to the bankruptcy trustee.  Creditors rarely appear at these meetings.  Very few clients ever have to return for another creditor’s meeting or to appear in front of a judge or litigate their case in a courtroom. 

The goal at this stage is to obtain confirmation, or court approval, of your Chapter 13 plan.  Once the plan is confirmed, payments will be processed and money will be sent to your creditors with the goal of quietly finishing your Chapter 13 plan.

What Happens If Something Very Good – or Very Bad – Happens During My Case?

Sometimes life gets in the way.  People get sick, lose their jobs or see a drop in income, watch their businesses fail, and cars and homes cause headaches.  That’s normal and we understand.  There are options in Chapter 13 cases to suspend plan payments, dismiss bankruptcies, convert to another chapter of bankruptcy like Chapter 7, or modify plan payments down the line. 

The same goes for unexpected windfalls and blessings like a pay raise, a larger-than-expected tax refund, a bonus, or a large lottery winning.  If any of these positive events happen, tell your attorney and we can advise on how to best continue.