Filing for bankruptcy is a huge, life-changing move. There can be a lot of uncertainty for the filer and questions they may have about the process. Frequently, people are concerned by how long it takes to file Chapter 13 bankruptcy because it can be a time-consuming process. The bankruptcy code is long and complicated, so it can be difficult to understand the mechanisms of this process.
Here is an overview of the steps and the timeline you can expect when filing for Chapter 13 bankruptcy.
Determining If Chapter 13 bankruptcy Is Right for You
Before you file for bankruptcy, you should consider whether filing for Chapter 13 is the best option for you. Chapter 13 is not for everyone. While it offers many advantages over Chapter 7 filings, including the ability to keep your home and additional family vehicles, Chapter 13 filers must maintain a certain monthly income to qualify.
Related: Chapter 7 vs. Chapter 13
Chapter 13 filers must meet a monthly income because, during the repayment period of their plan, they must pay a portion of their debt each month. The repayment period will take either 3 years (36 months) or 5 years (60 months). A person without a steady income will be ineligible for this plan because they will be unable to sustain regular monthly payments.
Preparing for Chapter 13
Once you have decided to move forward and file for Chapter 13 bankruptcy, you and your bankruptcy attorney will go through your financial documents and prepare the necessary paperwork.
Within 180 days before you file for bankruptcy, you will need to complete credit counseling. There are a number of US Trustee Office approved courses in Georgia, but I recommend my clients work with www.hummingbird.org because the course can be completed online. When the time comes, completing the course online makes it significantly easier to complete this required step at your convenience.
When you file for Chapter 13, you must submit the following documents:
- The bankruptcy petition itself;
- Schedules of assets and liabilities, including property you own;
- A schedule of your current income and expenditures, such as clothing, food, shelter, transportation, and medicine;
- A schedule of executory contracts and unexpired leases;
- A statement of financial affairs;
- The certificate from your credit counseling course;
- The debt repayment plan developed in your credit counseling course;
- Evidence of income for 60 days before filing;
- A statement of monthly net income;
- A record of interest you have in education or tuition accounts; and
- Your tax return from the previous year, as well as tax returns filed during the case.
As you can see, submitting these documents may take some time, depending on the extent of your assets and debts. Your attorney will work with you to make sure that all of the paperwork is complete.
Both you and your attorney must take reasonable steps to ensure that the paperwork is correct because your petition will be filed in federal court. After your paperwork is complete, you will sign all of the documents to certify that everything is correct.
Filing Paperwork in Court: Day One
At the time you file for Chapter 13 bankruptcy, you must pay a $235 filing fee, and a $75 miscellaneous administrative fee to the clerk of court. If you cannot make all of these payments at once, the bankruptcy court will accept an installment plan.
When you submit your paperwork to the court, this triggers an automatic stay. Any creditors are required to halt collections proceedings against you and your property, including lawsuits, wage garnishments, and even phone calls to collect debts.
Once you file, a Chapter 13 trustee will be appointed to your case. The trustee will evaluate your Chapter 13 case, and during your repayment plan will collect your payments to make distributions to your creditors.
Chapter 13 Repayment Plan: Filed Within 14 Days of the Bankruptcy Petition
If you do not file your repayment plan at the time you submit your bankruptcy petition, you must file it no later than 14 days after you filed the initial Chapter 13 paperwork.
In this plan, you must provide fixed payments to your trustee. These payments will be made either once a month or every other week. The trustee will then distribute these funds to your creditors.
Calculating Repayments Under Your Chapter 13 Plan
You will need to present a budget to the court showing your proposed repayment plan when you file for Chapter 13 bankruptcy. This will be calculated by dividing your disposable income among your creditors.
When you are preparing your repayment calculations for the court, you must also calculate your reasonable monthly expenses. This is money used to support yourself and your children, including:
- Medical and dental expenses
Your disposable income is considered everything left over at the end of the month after your monthly expenses. The remaining money will be used to pay your debts in order of priority.
How Debt Repayments Are Prioritized
Under your repayment plan, you may pay back all of your debts, or merely a portion of them. There are three types of claims you should consider:
Priority claims include:
- The cost to administer the bankruptcy;
- Federal student loans;
- Taxes; and
- Child and spousal support payments.
These claims are non-dischargeable, meaning they must be paid back in full. If there are outstanding priority claims after your bankruptcy case is finished, you will need to pay the outstanding balance.
Secured claims are for debts that are secured by property. Common types of secured claims include:
- The mortgage on your home;
- Car loans; and
- Secured credit cards.
If you want to keep property secured by these loans, you must pay the debtor at least the value of the property, which means that in certain situations, you may pay less than the value of the debt and still keep your property.
The ability to keep these types of property is one reason why Chapter 13 bankruptcy might be preferable to Chapter 7.
Unsecured claims are for debt that is not backed by a security interest in property. Examples of unsecured debt include:
- Credit card bills;
- Personal loans; and
- Medical debt.
Unsecured debt has the lowest repayment priority. Unsecured creditors will receive a percentage of the remaining funds after priority and secured debts are paid. These debts are dischargeable, so any remaining debts will be wiped out by your bankruptcy filing.
For example, Steven may owe $100 a month in child support payments, $5,000 in back taxes, have a monthly car payment of $300 on a new vehicle he wants to keep, and owe $10,000 to the local hospital for an emergency appendectomy. Under his repayment plan, Steven will make the monthly child support and vehicle payments on time. He will pay the back taxes over the repayment period, and any extra money will go towards his medical debt. During the repayment period, interest and penalties on Steven’s debt will stop, so the overall amount due will be less than it was before filing for bankruptcy.
First Payment Due: 30 Days After Filing
Even if your repayment plan has not yet been approved, you must make your first payment under your proposed plan within 30 days of filing. You must make sure that any payments on secured loans, such as your home or vehicle, are made on time, even if they are not due before the 30 day window closes. These payments will be subtracted from the first payment under your repayment plan.
341 Meeting of Creditors: Up to 60 Days After Filing
Between 21 and 60 days after your Chapter 13 case is filed, your trustee will hold a meeting of creditors. During the court hearing, the trustee will verify your information and ask you questions about your financial situation and your proposed Chapter 13 plan.
This meeting is open to the public, and it is likely that other Chapter 13 filers will be in the courtroom at the same time as you. However, bankruptcy judges do not attend this meeting so they can remain impartial.
If the trustee is satisfied with your proposed repayment plan and paperwork, he or she will conclude your hearing. If there is an issue with your paperwork, the trustee will continue the hearing to a later date. In order to conclude the hearing during the first date set, you can speak with the trustee ahead of time to discuss any questions or concerns you may have about your proposed plan.
Confirmation Hearing: 20-45 Days After the Meeting of Creditors
Within 45 days of the 341 Meeting of Creditors, the bankruptcy judge will hold a confirmation hearing, where he or she will determine if your plan is feasible and meets the standards for a repayment plan under the bankruptcy code.
Creditors may object to the confirmation of your repayment plan. Common concerns include:
- Funding objections, and
- Inappropriate valuation of assets
Often, people panic when they receive confirmation objections. These are routinely filed and can often be dealt with before the confirmation hearing. Your attorney will discuss each objection with you and the best way to respond.
Proofs of Claim from Unsecured Creditors: 90 Days After the Meeting of Creditors
Within 90 days of the meeting of creditors, any unsecured creditors must file a Proof of Claim with the court if they wish to participate in distributions from the bankruptcy estate. These documents will include information on the amount owed and the basis for the claim.
For example, a collections agency may file a Proof of Claim for surgery that was not covered by your insurance. The agency will need to include the amount still owed and proof that you were the one who incurred the debt.
You and your attorney can object to a creditor’s claim by arguing that the paperwork was not submitted correctly, the amount of the claim is incorrect, or the claim was made with the purpose of harassing you.
Repayment Plan Period: 3 or 5 Years After Filing
Once the bankruptcy court approves the repayment plan, you and your creditors are bound to it. You are responsible for ensuring the trustee receives your payments on schedule. During your repayment period, you may not incur new debts, such as taking out a new mortgage or opening a new credit card, without approval from your trustee.
Periodically, your trustee will send you statements showing the amount paid to each creditor, and the remaining amount due. Each year while the plan is in effect, you will be responsible for sending the trustee income and expense statements.
Since your repayment plan covers several years, there are many potential life changes that may make the plan untenable. People lose their jobs and get sick, making them unable to work. In these situations, you can seek to have your repayment plan modified, even after it was confirmed.
Finally, before you make your final payment under your plan, you must file a certificate with the court showing you completed a course in personal finance management.
Chapter 13 Discharge
Once you have made all of the payments under your repayment plan and completed your filing obligations, you will receive a court order that discharges your debt.
Once your debt has been discharged, you are no longer obligated to pay it.
Remember, some debts and obligations are not dischargeable. You will still be obligated to pay these debts, including child and spousal support and student loan debt. If you owe money on your home, vehicles, or other secured property, you will need to continue making payments if you wish to keep this property.
After your debts have been discharged, you can start rebuilding your credit history and improving your credit score. You will be able to take out new loans and mortgages. However, you should proceed carefully. Since you will have a clean slate and a chance to start again, it is important to make sound financial decisions moving forward.
If you are interested in learning more about Chapter 13 bankruptcy or have any questions about the time frame for filing, contact our experienced attorneys today.