Need A Chapter 13 Bankruptcy Attorney Near Gilbert, AZ?
How Does Chapter 13 Work?
Filing a Chapter 13 bankruptcy petition puts a freeze on your creditors. It stops collection calls, pending lawsuits, and wage garnishments. The Chapter 13 stay prevents bank account garnishments and prohibits creditors from seizing assets.
If you’re facing foreclosure, a Chapter 13 filing stops a trustee’s sale from going forward and allows you to save your home. A lender who has repossessed your vehicle must return it to you, assuming it has not been sold and you want it back. Going forward, you remain protected as long as you make the required plan payments and your Chapter 13 case is not dismissed.
More About Chapter 13
Chapter 13 Explained
Chapter 13 is a “reorganization” bankruptcy because it allows you to restructure your debt by proposing a plan to repay all or some of it, typically over a period of three to five years. It is for individuals with regular income, but not incorporated businesses. While called the “wage earner plan”, Chapter 13 is also available to people who are self-employed or operating a sole proprietorship business. But there are limitations on the amount of debt allowed in a Chapter 13, which may disqualify debtors with sizable business debt. Chapter 13 is similar to a debt consolidation loan in that you make one payment to a Chapter 13 bankruptcy trustee, rather than separate payments to individual creditors. The length of the plan term depends primarily upon your income over the preceding six months. If it is below the median level for a household of your size in Arizona, the required repayment period is three years; when above median it is a five year repayment period. But even when you’re only required to be in a three year plan, it isn’t unusual to opt for a five year plan instead to lower the plan payment.
Why file under Chapter 13 when Chapter 7 gives you a clean slate in only about four months? For starters, it’s the only bankruptcy option available if your income level prevents you from passing the Chapter 7 means test. When the type of debt you’re struggling with is unsecured, such as credit cards, medical and repossession deficiencies, Chapter 7 is usually the best option. However, when Congress mandated the means test in 2005, it became much harder for folks to qualify for Chapter 7, and even those who feel like they’re barely getting by are having to file Chapter 13 instead. That doesn’t mean Chapter 13 isn’t beneficial though, as your monthly plan payments are usually significantly less than the amount of your debt payments prior to filing. You can also “cram down” auto loans, paying the present Kelley Blue Book value of the vehicle versus the loan balance, when the loan was taken out more than 910 days prior to a Chapter 13 bankruptcy filing.
There are situations where Chapter 13 is the best or only option, regardless of whether you would otherwise qualify for Chapter 7. A prime example is when you want to save your home from foreclosure. Chapter 13 allows you to cure a mortgage delinquency by paying the missed payments, called arrears, through the plan. You can prevent or stop a trustee’s sale of your house by filing a Chapter 13 petition prior to the sale date, and have as much as five years to get caught up on the delinquent mortgage payments. Chapter 13 is also helpful for priority tax obligations that are not dischargeable in Chapter 7, as you can pay them in full through the plan and discharge the interest. Another advantage that Chapter 13 has over Chapter 7 is that some types of debts are dischargeable only in Chapter 13. For example, if you were ordered to pay certain debts in connection with a divorce decree, a Chapter 13 can discharge the “hold harmless” obligation to your ex-spouse, whereas your ex’s claim remains enforceable against you after Chapter 7. Finally, if you have valuable assets that are not exempt and would be forfeited in Chapter 7, a Chapter 13 allows for you to keep them by paying their value to your unsecured creditors in the plan.
The amount of your monthly plan payment depends upon the type of debt in the plan as well as your monthly net income and monthly living expenses paid outside the plan. Examples of monthly expenses paid outside the plan are rent, utilities, food, insurance payments, etc. Generally, all debts are paid through the plan (including auto loans), so you no longer make payments directly to lenders. If you are married, your spouse’s income is included even if he or she is not filing bankruptcy jointly. The difference between your net monthly income and expenses represents your “disposable income”, which is the plan payment amount the math shows you can afford to make. But that isn’t the end of the analysis because certain types of debts, such as secured debts and priority taxes, have to be paid in full over the plan term and the numbers must show that you can afford to do so. It is further complicated in Southern Arizona (Pima and Pinal counties), where the amount that must be paid to unsecured creditors in the plan hinges on the Chapter 13 means test. Calculating a Chapter 13 plan payment is a balancing act and can be quite difficult. Clients often ask me whether their plan payment will increase should they start earning more money after the bankruptcy has been filed. The short answer is yes, unless your living expenses also increase. Your plan can be amended or modified to reflect a change in your monthly budget.
Unlike most Chapter 7 cases, the administration of a Chapter 13 continues on long after the filing date. There is a process for getting the Chapter 13 plan “confirmed”, which is usually done by agreement with the Chapter 13 trustee and creditors, but can also be accomplished over their objections with the court. The confirmation rate for pro se debtors who decline to hire an attorney is extremely low, as the process usually becomes too overwhelming for them. A bankruptcy attorney will not only put together the most advantageous plan for you, but also negotiate with the trustee and creditors to get it confirmed, and handle whatever problems may arise over the term of the plan.
Chapter 13 Timeline in Arizona
The time frame for Chapter 13 is much longer than Chapter 7, and it is a more complicated and varied process. Each Chapter 13 case is unique and plays out differently. Here are the basic steps that you can expect to find in every case:
1. We have our first meeting, either in person or by phone or video, to talk about your situation. I’ll analyze the issues and explain your options. If a Chapter 13 bankruptcy is a good option for you, and you decide to proceed with filing, I gather the information and documents needed from you to prepare the bankruptcy petition, schedules, statements, and plan. Then we will review the bankruptcy documents together and sign them. If you have everything with you at the first appointment, I can prepare and file your case that same day! Even if you don’t have everything ready to go, in emergency situations, your case can be filed as a “skeletal petition”, followed by the schedules, statements and plan due within the next two weeks.
2. You must complete a credit counseling course from an approved credit counseling agency prior to filing bankruptcy. It’s roughly an hour long course that can be taken online and costs approximately $15. You will receive a certificate of completion that must be filed with the court when the case is filed. The credit counseling course must be completed prior to filing even for cases filed on an emergency basis.
3. Once your case is filed, there is a bankruptcy trustee appointed and a date set for your 341 Meeting of Creditors, which is held between 21 and 40 days after the petition is filed. The “341 meeting” (named after the applicable Bankruptcy Code section) is an in-person meeting with the trustee assigned to your case, where the trustee asks you questions under oath. Sometimes the trustees have their attorneys fill in for them. Your creditors receive notice of the meeting, but normally do not show up, so it usually goes by very quickly. The most important thing for you to remember is to bring a government-issued photo I.D. (driver’s license, passport, etc.) and proof of social security number (social security card or W-2 form); otherwise, the meeting will be continued to a later date. The trustee will ask you to state the physical address for your place of employment, so you’ll want to be prepared by having it memorized or with you.
4. Shortly after the case is filed, and prior to the 341 meeting, you will receive a questionnaire from your trustee in the mail. It is very important to make me aware of any address change so that the questionnaire is mailed to the correct address. The questionnaire must be returned by the trustee’s deadline, which is usually 7 days in advance of the 341 meeting, so the trustee has an opportunity to review it beforehand. I’ll be available to help you with it as needed. You are also required to provide a copy of your federal income tax return, or transcript, for the last year a return was actually filed. If the trustee does not timely receive the questionnaire, he or she may continue the 341 meeting to a later date, and you will have to appear again.
5. The first plan payment comes due 30 days after your case is filed, and in most cases, before the date of the 341 meeting. You should timely make the first payment to your trustee, either by mailing a cashier’s check or electronically through TFS bill pay (tfsbillpay.com). If you’re employed, the subsequent payments will be automatically deducted from your paychecks through a wage order, and the monthly payment will be divided up between the number of paychecks each month. The trustee uses payments received from you to pay administrative expenses and make distributions to your creditors. Additionally, all necessary tax returns due for the last 4 years not already filed must be filed prior to the 341 meeting.
6. There is a second course, the debtor education course, which you must take after the bankruptcy filing. It can be taken through the same agency as the pre-filing course, and costs approximately $10. The post-filing course is about twice as long as the pre-filing course. In Chapter 13 cases, you have until the end of the plan term to take the debtor education course, but it’s best to get it out of the way early in the process. At your 341 meeting, the trustee will ask if you’ve taken it yet, and if not, will give you information on how to take it free of charge.
7. Any creditors who wish to object to your plan must file an objection within 14 days after the 341 meeting or 28 days after service of the plan, whichever is later. Failing to file an objection is considered acceptance of the plan. If a creditor objects to your plan, I will work with that creditor to resolve the objection, and ask the bankruptcy judge to decide the issue if necessary.
8. The Chapter 13 trustee must file a recommendation or objection to the plan within 35 calendar days after the 341 meeting, or 50 days after service of the plan, whichever is later. If you have not made any plan payments at this point, the trustee can ask the court to dismiss your case. The trustee’s recommendation/objection raises issues that, in the trustee’s opinion, need to be resolved before he or she will agree to the terms of the plan. I will work with the trustee to resolve any such issues, and in most cases, we can get the plan “confirmed” by the court through an agreement with the trustee and any objecting creditors.
9. Once the plan is confirmed, the property you owned on the bankruptcy filing date, and which became property of the bankruptcy estate, revests in you. This is an important event for certain assets like your house. After confirmation, you are able to do things like finance the purchase of a car if necessary and with the trustee’s permission. But it doesn’t mean that you can keep income tax refunds, as the trustee will require a provision in the order confirming the plan requiring that you turn them over. For Southern Arizona cases (Pima and Pinal counties), you must presently turn over all but the first $1,000 in net tax refunds. If necessary, your plan can be modified after confirmation. For example, should you experience a reduction of income, or increased living living expenses, the plan can be changed to lower the monthly payments, assuming it continues to meet the funding requirements.
10. Upon making all required payments, the plan is completed, and the Bankruptcy Court will enter a discharge if you are eligible for one. Prior to the entry of the discharge, creditors have an opportunity to object to the discharge of certain debts; for example, when there are allegations of fraud or misrepresentation. Objections to discharge are a rare occurrence.
11. The trustee, after paying all administrative expenses and making distributions to creditors who have filed allowed proofs of claim, files a final report with the Bankruptcy Court and your Chapter 13 case is subsequently closed.