New York Chapter 13 Bankruptcy | New Jersey Chapter 13 Bankruptcy
HOW CHAPTER 13 BANKRUPTCY WORKS
(Time from filing to discharge: usually 36-60 months)
1. Mandatory Credit Counseling
For cases filed after October 17, 2005, you must obtain a certificate from an approved credit counseling agency before you can file your case. This costs approximately $50 and can usually be done quickly online or at one of our convenient New York or New Jersey offices. One of our bankruptcy lawyers will provide you with information on how to obtain this counseling. A copy of any payment plan devised by the counseling service must also be filed with the court.
2. File Petition, Schedules, Tax Returns, and Statement of Financial Affairs and Plan With the Court
When these documents, which you have signed under penalty of perjury, are filed with the Court, you will be assigned a case number and this commences your case. You must file all tax returns that were required to be filed for the 4 years prior to filing your case.
In most cases, immediately upon filing your case, an injunction goes into effect stopping your creditors from taking any further action to collect or recover on any debt you owe without first getting permission from the bankruptcy court (which is only granted for specific purposes). This injunction is called the “automatic stay”. For cases filed after October 17, 2005, the automatic stay is really “semi-automatic” because if you have a prior dismissed bankruptcy case in the past 12 months, or if certain other conditions are met, you may need to file a motion to get the court to impose the Stay.
2. Your “PLAN”
In Chapter 13, along with all your other papers, you file a Plan of repayment with your creditors. This plan contains several required provisions, but the main ones are as follows:
A. You are paying ALL of your projected disposable income into the plan for a minimum of 36 months, and a maximum of 60 months. The length of the term depends on numerous factors. Disposable income is defined as your “current monthly income” (which is an average of all income received in the 6 months prior to filing your case, excluding social security income and child support payments reasonably necessary for the support of the child) minus your reasonable and necessary living expenses based on standards set forth by the Internal Revenue Service for your district. For cases filed after October 17, 2005, it is not yet clear exactly how your monthly payment will be calculated. In part, it depends on whether or not your gross income for the 6 months prior to filing your case leaves you above or below the “median income” level in your district. It seems that if you are above the median income, (depending on how much above you are) your disposable income will be determined by using only IRS allowed expenses . Obviously, this can lead to a monthly required payment that you could have difficulty making.
B. Your creditors will receive no less than they would receive if you did a Chapter 7 liquidation. In other words, if you have assets which are not fully exempt, then you need to pay out at least that amount over the term of your Plan.
C. Certain creditors must be paid 100% through your Plan, so you must have sufficient disposable income to be able to do this in the required time frame. Examples of creditors needing to be paid 100% are: Mortgage arrearages, taxes less than 3 years old, past due child support or alimony and others.
Assuming you meet the above (and certain other) requirements, your Plan can theoretically pay anywhere from zero to one-hundred percent to your general unsecured creditors.
4. Mandatory meeting with the Trustee
This occurs about one month after your case is filed. It is often referred to as the meeting of creditors
Depending on your situation, these meetings in Chapter 13 cases can take quite a bit of time, as they are significantly more involved than in Chapter 7 cases. The Trustee will analyze your bankruptcy papers and the information contained therein. Also, you are required to prove the income you set forth on your bankruptcy papers. For most, this means providing recent paycheck stubs. For self-employed people, this means showing prior years’ tax returns and bank deposit slips (or statements).
The Trustee’s role in a Chapter 13 case is at first to make sure that you are filing your case in “good faith” and that your monthly plan payment is as high as possible, so as to maximize the benefit to your creditors. Once your Plan is confirmed by the court, however, the Trustee generally wants to see you succeed because that’s how the Trustee gets paid (by disbursing your monthly payments to your creditors).
5. Objections to your Plan
Your creditors are, of course, able to object to your plan on the grounds set forth above, as well as others (if they can show it wasn’t proposed in good faith, the amounts are insufficient, etc.). Times for objection vary depending on a variety of factors, but generally all objections must be made prior to the confirmation hearing, and usually prior to the meeting with your Trustee.
6. Claims of your creditors
Your unsecured creditors are required to file “proofs of claim” with the court in order to be paid from your Plan. As you might imagine, frequently these claims are for higher amounts than you put in your bankruptcy papers. This can often cause your proposed plan to become infeasible and necessitates that your attorney object to these claims (assuming grounds exist for doing so). Generally your creditors have 90 days following the first meeting date with the Trustee to file their claims. Taxing agencies have longer to file their claims.
7. Plan Confirmation Hearing
At some point after your meeting with the Trustee, the court will hold a hearing on confirmation of your Plan. In some jurisdictions this occurs on the same day as your meeting with the Trustee. In most courts, however, it will occur a month or more after your Trustee’s meeting. Often the Plan confirmation hearing gets continued in order to allow you to amend your plan or take other necessary steps to make it feasible or to deal with objections (by the Trustee or creditors) or other issues that arise.
8. Your payments
Your monthly proposed plan payments are first due 30 days after your case is filed and then continue for the duration of your plan. Your attorney will explain to you when, where and how to make these payments. If you miss any payments required prior to your Plan being confirmed by the court, your case will be dismissed and you will lose the protection of the bankruptcy Stay. Additionally, you must maintain all normal monthly payments to any secured creditors you have (such as mortgages, car payments, etc.) if you intend to retain the collateral on which those debts are secured, and on taxes or other debts which come due after filing. A failure to maintain or stay current on such payments during the pendency of your Chapter 13 case can result in the loss of the asset and dismissal of your case.
9. Ongoing Duties
Once your plan is confirmed by the court, you simply need to make the required payments for the duration of your plan. However, you must provide the Trustee in your case a copy of your subsequent tax returns that come due and are filed during your plan term
10. Discharge
Once you have completed all the required payments due under your plan, the Trustee will start to process your discharge. This usually takes several months to complete after receipt of your final payment. If you are curing a mortgage default, your loan is not reinstated until all payments have been received as required under the plan by that creditor.