Chapter 13 Eligibility.
Any individual, even if self-employed or operating
an unincorporated business, is eligible for chapter
13 relief as long as the individual's unsecured
debts are less than $360,475 and secured debts are
less than $1,081,400. 11 U.S.C. § 109(e). These
amounts are adjusted periodically to reflect changes
in the consumer price index. A corporation or
partnership may not be a chapter 13 debtor. Id.
An individual cannot file under chapter 13 or any
other chapter if, during the preceding 180 days, a
prior bankruptcy petition was dismissed due to the
debtor's willful failure to appear before the court
or comply with orders of the court or was
voluntarily dismissed after creditors sought relief
from the bankruptcy court to recover property upon
which they hold liens. 11 U.S.C. §§ 109(g), 362(d)
and (e). In addition, no individual may be a debtor
under chapter 13 or any chapter of the Bankruptcy
Code unless he or she has, within 180 days before
filing, received credit counseling from an approved
credit counseling agency either in an individual or
group briefing. 11 U.S.C. §§ 109, 111. There are
exceptions in emergency situations or where the U.S.
trustee (or bankruptcy administrator) has determined
that there are insufficient approved agencies to
provide the required counseling. If a debt
management plan is developed during required credit
counseling, it must be filed with the court.
How Chapter 13 Works.
A chapter 13 case begins by filing a petition
with the bankruptcy court serving the area where the
debtor has a domicile or residence. Unless the court
orders otherwise, the debtor must also file with the
court: (1) schedules of assets and liabilities; (2)
a schedule of current income and expenditures; (3) a
schedule of executory contracts and unexpired
leases; and (4) a statement of financial affairs.
Fed. R. Bankr. P. 1007(b). The debtor must also file
a certificate of credit counseling and a copy of any
debt repayment plan developed through credit
counseling; evidence of payment from employers, if
any, received 60 days before filing; a statement of
monthly net income and any anticipated increase in
income or expenses after filing; and a record of any
interest the debtor has in federal or state
qualified education or tuition accounts. 11 U.S.C. §
521. The debtor must provide the chapter 13 case
trustee with a copy of the tax return or transcripts
for the most recent tax year as well as tax returns
filed during the case (including tax returns for
prior years that had not been filed when the case
began). Id. A husband and wife may file a joint
petition or individual petitions. 11 U.S.C. §
302(a). (The Official Forms may be purchased at
legal stationery stores or downloaded from the
Internet at www.uscourts.gov/bkforms/index.html.
They are not available from the court.)
The courts must charge a $235 case filing fee and a
$39 miscellaneous administrative fee. Normally the
fees must be paid to the clerk of the court upon
filing. With the court's permission, however, they
may be paid in installments. 28 U.S.C. § 1930(a);
Fed. R. Bankr. P. 1006(b); Bankruptcy Court
Miscellaneous Fee Schedule, Item 8. The number of
installments is limited to four, and the debtor must
make the final installment no later than 120 days
after filing the petition. Fed. R. Bankr. P.
1006(b). For cause shown, the court may extend the
time of any installment, as long as the last
installment is paid no later than 180 days after
filing the petition. Id. The debtor may also pay the
$39 administrative fee in installments. If a joint
petition is filed, only one filing fee and one
administrative fee are charged. Debtors should be
aware that failure to pay these fees may result in
dismissal of the case. 11 U.S.C. § 1307(c)(2).
In order to complete the Official Bankruptcy Forms
that make up the petition, statement of financial
affairs, and schedules, the debtor must compile the
following 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.
Married individuals must gather this information for
their spouse regardless of whether they are filing a
joint petition, separate individual petitions, or
even if only one spouse is filing. In a situation
where only one spouse files, the income and expenses
of the non-filing spouse is required so that the
court, the trustee and creditors can evaluate the
household's financial position.
When an individual files a chapter 13 petition, an
impartial trustee is appointed to administer the
case. 11 U.S.C. § 1302. In some districts, the U.S.
trustee or bankruptcy administrator (2) appoints a
standing trustee to serve in all chapter 13 cases.
28 U.S.C. § 586(b). The chapter 13 trustee both
evaluates the case and serves as a disbursing agent,
collecting payments from the debtor and making
distributions to creditors. 11 U.S.C. § 1302(b).
Filing the petition under chapter 13 "automatically
stays" (stops) most collection actions against the
debtor or the debtor's property. 11 U.S.C. § 362.
Filing the petition does not, however, stay certain
types of actions listed under 11 U.S.C. § 362(b),
and the stay may be effective only for a short time
in some situations. The stay arises by operation of
law and requires no judicial action. As long as the
stay is in effect, creditors generally may not
initiate or continue lawsuits, wage garnishments, or
even make telephone calls demanding payments. The
bankruptcy clerk gives notice of the bankruptcy case
to all creditors whose names and addresses are
provided by the debtor.
Chapter 13 also contains a special automatic stay
provision that protects co-debtors. Unless the
bankruptcy court authorizes otherwise, a creditor
may not seek to collect a "consumer debt" from any
individual who is liable along with the debtor. 11
U.S.C. § 1301(a). Consumer debts are those incurred
by an individual primarily for a personal, family,
or household purpose. 11 U.S.C. § 101(8).
Individuals may use a chapter 13 proceeding to save
their home from foreclosure. The automatic stay
stops the foreclosure proceeding as soon as the
individual files the chapter 13 petition. The
individual may then bring the past-due payments
current over a reasonable period of time.
Nevertheless, the debtor may still lose the home if
the mortgage company completes the foreclosure sale
under state law before the debtor files the
petition. 11 U.S.C. § 1322(c). The debtor may also
lose the home if he or she fails to make the regular
mortgage payments that come due after the chapter 13
filing.
Between 20 and 50 days after the debtor files the
chapter 13 petition, the chapter 13 trustee will
hold a meeting of creditors. If the U.S. trustee or
bankruptcy administrator schedules the meeting at a
place that does not have regular U.S. trustee or
bankruptcy administrator staffing, the meeting may
be held no more than 60 days after the debtor files.
Fed. R. Bankr. P. 2003(a). During this meeting, the
trustee places the debtor under oath, and both the
trustee and creditors may ask questions. The debtor
must attend the meeting and answer questions
regarding his or her financial affairs and the
proposed terms of the plan.11 U.S.C. § 343. If a
husband and wife file a joint petition, they both
must attend the creditors' meeting and answer
questions. In order to preserve their independent
judgment, bankruptcy judges are prohibited from
attending the creditors' meeting. 11 U.S.C. §
341(c). The parties typically resolve problems with
the plan either during or shortly after the
creditors' meeting. Generally, the debtor can avoid
problems by making sure that the petition and plan
are complete and accurate, and by consulting with
the trustee prior to the meeting.
In a chapter 13 case, to participate in
distributions from the bankruptcy estate, unsecured
creditors must file their claims with the court
within 90 days after the first date set for the
meeting of creditors. Fed. R. Bankr. P. 3002(c). A
governmental unit, however, has 180 days from the
date the case is filed file a proof of claim.11
U.S.C. § 502(b)(9).
After the meeting of creditors, the debtor, the
chapter 13 trustee, and those creditors who wish to
attend will come to court for a hearing on the
debtor's chapter 13 repayment plan.
Information herein was obtained from the United States Courts.
