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At Buckrop & VanDeVelde, we have helped numerous individuals and businesses get a fresh start by exercising their legal rights under the U.S. Bankruptcy Code. If you are interested in filing bankruptcy please read the information below, which will provide you with detailed information about the benefits of a Chapter 13 bankruptcy and what you can expect to encounter along the way.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is the second most common type of bankruptcy and is often referred to as a reorganization. In a Chapter 13 bankruptcy the debtor proposes a plan to repay creditors some or all of the debt he or she owes over a period of 36 to 60 months. Generally, at the end of the bankruptcy, all debts included within the bankruptcy are discharged whether or not a portion or all of the debt was paid.
A Chapter 13 is a powerful tool for debtors planning on filing a bankruptcy and gives them many options that are not available in a Chapter 7 bankruptcy. If you are behind on your mortgage payments and facing foreclosure you often can confirm a Chapter 13 Plan, which will reinstate your mortgage by paying what you are behind over a period of time up to 60 months. If you are behind on car payments and facing repossession, or in some cases even if your car has been repossessed, you can confirm a Chapter 13 plan, which allows you to pay the vehicle off over the term of your Chapter 13 Bankruptcy.
If you owe more for your vehicle than it is worth, you may be able to pay off the vehicle in a Chapter 13 by paying the creditor the value of the vehicle over the life of your bankruptcy. In many cases the interest you had been paying on secured debt can be substantially reduced allowing you to pay off the secured debt more quickly. Chapter 13 debtors often discover their bankruptcy payment is substantially lower than what they had been paying to their creditors on a monthly basis. This is because a Chapter 13 payment is based on a bankruptcy petitioner's ability to pay and generally not with the amount of debt he or she owes.
I Can't Afford My Second Mortgage. Is There Anything I Can Do?
Believe it or not you may be able to get rid of your second mortgage through the filing of a Chapter 13 bankruptcy and keep your house! The Bankruptcy Code, as interpreted by the courts, allows many individuals and businesses to strip off (discharge) second mortgages in a Chapter 13 bankruptcy if the property is worth less than the amount owed on the first mortgage as of the date of filing their bankruptcy petition.
You may ask, "How could my home be worth less than my first mortgage?" The answer is that over the years, the value of homes increased dramatically. Many, hoping to use the equity in their home to make improvements, obtain a better interest rate or pay off other debts, refinanced their home at a higher amount then when they first purchased their home. Many also borrowed on home equity lines of credit and second mortgages.
Over the past several years the average value of homes in many parts of the United States has fallen drastically. As a result many homes are now only worth a fraction of what they once were. In situations such as these you often may find that the true value of your home is worth less than what you owe on your first mortgage. In this situation a Chapter 13 bankruptcy can free you from the second mortgage by stripping off the mortgage through your bankruptcy.
Why Would I File a Chapter 13 Bankruptcy?
There are many reasons why an individual would choose to file a Chapter 13 bankruptcy. Some choose to file by choice and others because they have no alternative. Often people will file a Chapter 13 bankruptcy to reinstate their mortgage and stop a foreclosure. Generally you can reinstate your home up until the point it is sold.
Another reason to file a Chapter 13 Bankruptcy is that it will allow you to keep your vehicles in the face of a repossession. Many times you will find that you can pay off those same vehicles for less than what you were paying. Some choose to file a Chapter 13 bankruptcy to repay all of their creditors the amount they owed, even though they would not be required to under the code.
In 2005 Congress passed the Bankruptcy Abuse Prevention and Consumer Credit Protection Act, which implemented what is referred to as the "means test." The purpose of the means test is to prevent individuals who can afford to repay a portion of their debts from filing a Chapter 7 bankruptcy and discharging their debts without having to pay back even a portion of what they owe.
If an individual seeking bankruptcy protection does not pass the means test he or she will not qualify for a Chapter 7 bankruptcy and therefore his or her only option is to file a Chapter 13 bankruptcy. Another reason that an individual seeking bankruptcy protection would file a Chapter 13 bankruptcy instead of a Chapter 7 is that a Chapter 7 bankruptcy can be filed only once every eight years. Therefore anyone who has filed a Chapter 7 bankruptcy within that timeframe would not be eligible to file another one.
How Do I Get Started and What Can I Expect?
The first step is to contact an experienced Chapter 13 bankruptcy attorney who will be able to review your finances to see if a Chapter 13 bankruptcy would be beneficial for you and your family. The attorney will review your income, expenses, debts, and property during the free initial consultation. If a Chapter 13 would be beneficial for you the attorney will go over the cost to file the bankruptcy and the items you will need to provide in order to get your bankruptcy started. Once you have paid the required fee and provided all the documentation requested, your Chapter 13 bankruptcy will be prepared for filing. Normally, this process will take approximately two weeks. In rare cases such as when your home is about to be sold or your vehicle repossessed your Chapter 13 bankruptcy can be prepared and filed in as little as a day. In more complicated cases the process can take months.
The Signing Letter: Your Bankruptcy Is Ready to Be Filed
Once your bankruptcy petition and schedules are completed you will receive a letter from your attorney informing you of the next step you need to take. The signing letter will inform you of any information you still need to provide to your bankruptcy attorney and will include a list of creditors obtained from your credit reports for your review. YOU ARE RESPONSIBLE FOR LISTING ALL OF YOUR CREDITORS IN YOUR BANKRUPTCY. If you fail to list a creditor, it is possible that the creditor will not be discharged in your bankruptcy. Remember that even though your credit reports will contain many of your debts some creditors do not report to the credit reporting agencies and therefore would not show up on a credit report. You should review the list of creditors provided by your attorney and make sure to add any missing creditors. The next step is to complete your credit counseling.
Credit Counseling: The Gateway to Bankruptcy
Under the Bankruptcy Abuse Prevention and Consumer Credit Protection Act of 2005, Congress mandated that prior to any bankruptcy filing the debtor is required to obtain a credit counseling certificate from a qualified provider. Don't worry, by this time we have already enrolled you in a credit counseling course. You may take your credit counseling online or over the phone by following the instruction sheet that came with your signing letter. Once you have completed your credit counseling you are ready to file your Chapter 13 bankruptcy. You will not have to save or print proof of credit counseling because the provider will have already sent your credit counseling certificate to our office. All you need to do at this point is pick up the phone and call us to schedule an appointment to review your bankruptcy petition and schedules.
The Signing Appointment
At your signing appointment your bankruptcy petition and schedules will be explained to you in detail. You will also be left alone for a period of time to review your Chapter 13 bankruptcy petition and schedules for accuracy. If any information is missing you will need to make the required changes. If any information is incorrect you will need to change it. Once all the changes have been made you will sign your bankruptcy petition and schedules at which point your bankruptcy will be filed.
My Chapter 13 Bankruptcy Is Filed. Now What?
Within a few days of your Chapter 13 bankruptcy filing you will receive information from the bankruptcy court and from your Chapter 13 trustee. The Chapter 13 trustee will introduce and briefly explain the Chapter 13 process, where and how you need to make payments and the date your payments are due. The court will mail you a notice of bankruptcy filing. The notice of bankruptcy filing will contain your case number, your court date, and other pertinent information. You will need your case number to complete your debtor's education course, which is also required under the bankruptcy law. The debtor's education course can be taken in the same manner as your credit counseling.
Your first Chapter 13 bankruptcy payment will be due exactly 30 days after your bankruptcy is filed with the court. Different Chapter 13 trustees allow for different methods of payment. Most bankruptcy trustees accept cashier's checks and money orders. You should always include your name (first and last) as well as your case number. It is also a good idea to save copies of all the payments you send in case your payment history becomes a question. Many will also allow your Chapter 13 bankruptcy payments to be withheld directly from your wages. Some will even allow the payments to be deducted directly from your bank account.
It is important to remember that you are responsible for making your Chapter 13 bankruptcy payments regardless of your arrangement with the trustee. Therefore, if you choose to have your Chapter 13 bankruptcy payments deducted directly from your paychecks or bank account you will need to make your payments by cashier's check or money order until you see the payments are being deducted. There is often a delay of a month or two before the automatic deductions for bankruptcy payments can be put into place.
First Meeting of Creditors
Your court date is referred to as a meeting of creditors and normally occurs approximately 30 to 45 days after your Chapter 13 bankruptcy has been filed. The meeting of creditors is required under the Bankruptcy Code and it is a chance for your creditors to ask you questions. The goal behind such questions is normally to find hidden assets or streams of income that could be used to pay a higher portion back to your creditors. But more often than not creditors do not show up at the meeting of creditors.
Normally, your Chapter 13 bankruptcy meeting of creditors consists of a trustee, other bankruptcy lawyers, and other individuals and businesses who have filed for bankruptcy protection. When your name is called you will appear in front of the trustee along with your attorney. The trustee will ask for two forms of identification (Social Security card and state-issued picture ID such as a driver's license). It is the trustee's job to make sure you are paying all you are required to pay into your bankruptcy and to represent your unsecured creditors. Your meeting of creditors is normally the last bankruptcy hearing you will need to attend.
Life During a Chapter 13 Bankruptcy
As long as you continue to make your monthly Chapter 13 payments as they become due you should not have any problems with your bankruptcy. You will have certain responsibilities and reporting requirements while you are in your bankruptcy:
- You will need to keep your attorney informed of any change in address or phone number. It is common that a case will get dismissed because neither the court nor the attorney was able to contact the Chapter 13 bankruptcy client because he or she moved and changed his or her phone number and did not tell anyone.
- You will need to report to the bankruptcy trustee and your attorney if you become entitled to any property through inheritance or otherwise as this could be considered property available for creditors.
- You will need to provide the trustee with a copy of your income tax returns yearly and you may need to turn over any income tax refunds that you receive.
- You are not allowed to obtain credit or sell large items without court permission while in your bankruptcy. If you need to do so, contact your attorney who will file the necessary motions.
The foregoing paragraph is not an exhaustive list of the requirements and responsibilities of a Chapter 13 bankruptcy. As a general rule if you have doubts about what you should or should not be doing then it is a good idea to check with your bankruptcy lawyer.
I Cannot Afford to Make My Chapter 13 Bankruptcy Payment!
If you are not able to make your Chapter 13 payment then you should contact your bankruptcy lawyer. If you are earning less money or have increased monthly expenses it may be possible to lower your monthly payments. If you lost income because you were laid off, had an extended illness, or otherwise were unable to work your bankruptcy lawyer may be able to stop your Chapter 13 bankruptcy payment for up to three months or you may be eligible to convert to a Chapter 7 bankruptcy.
It is always a good idea to contact your bankruptcy attorney before you fall behind on Chapter 13 payments. Your bankruptcy attorney can advise you on the best way to proceed under your circumstances.
Automatic Stay and Discharge Injunction
As with a Chapter 7 bankruptcy, a Chapter 13 bankruptcy also gives individuals and businesses filing for bankruptcy the protection of the automatic stay and the discharge injunction.
Experienced Chapter 13 Bankruptcy Attorney located in downtown Rock Island, IL
Our office is located in The Law Centre in downtown Rock Island, Illinois, just a short distance from both Iowa and Illinois federal courthouses. Our lawyers and professional staff proudly serve most clients throughout Western Illinois and Eastern Iowa. Call us toll free at 800-627-5704 or contact us by e-mail to arrange a consultation with an experienced Chapter 13 attorney today.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
