View Larger Map

National Association of Consumer Bankruptcy AttorneysLaw Offices of Stan E. Riddle, Attorneys & Lawyers - Bankruptcy & Taxes, Oakland, CA
Chapter 13 Bankruptcy

Chapter 13 - Background

Chapter 13 bankruptcy enables individuals with steady income to enter into a plan enabling them to repay all or a portion of their debts. Because of this it can also be called a wage earner's bankruptcy plan. Under this particular chapter, debtors propose a plan to repay particular creditors over a period of three or five years. In circumstances where the debtor's present monthly income is below the state median, a three year plan may be recommended, but the court may approve a five year plan if that is preferred by the debtor. All through the life of your chapter 13 plan you will be under the protection of bankruptcy, where the law forbids creditors from opening or continuing any debt collection efforts.

Chapter 13 - Eligibility

Even if self-employed or operating an unincorporated business, an individual debtor may qualify for chapter 13 bankruptcy protection. The unsecured debts will need to be less than $365,000 while their secured debts are less than $1,081,400 in order to qualify. A corporation or partnership does not qualify for protection under chapter 13 of the bankruptcy code.

There are some very specific reasons that an individual would not qualify to file for bankruptcy protection no matter the chapter. Some of the primary reasons which could occur in the 180 days prior to filing include whether the debtor has, (1) a prior bankruptcy case that was dismissed due to the debtor's willful failure to comply with orders of the court or appear before the court, or (2) their case was voluntarily dismissed by the debtor because creditors sought relief from the bankruptcy court to recover property for which they hold lawful rights.

Chapter 13 - How It Works

A chapter 13 case is initiated when the debtor files a petition together with all the required schedules and documents with the bankruptcy court serving the area where the debtor resides. The case filing fee is also due to the courts at this time. Once a case is opened, the debtor should also expect to be asked by the chapter 13 trustee to provide them with a copy of their most recently filed tax return or transcript and any other tax returns that are filed during the life of the case. This request includes all tax returns for prior years that were yet to be filed when the case was opened.

Any time that a chapter 13 petition is filed an independent trustee is appointed to administer the case. In this role the chapter 13 trustee is responsible for evaluating the case and acting as the issuing agent for all monies handled as part of the case. This includes the collection of payments from the debtor each month and disbursing payments to qualifying creditors. The act of filing the chapter 13 petition will automatically “stay" or halt most all collection activities against the debtor and their property. For as long as the stay remains in effect, the large majority of your creditors may not initiate or continue wage garnishments, lawsuits, or even contact you, the debtor, to request payments. In response to the filing of the bankruptcy case, the clerk of the court will serve notice of the bankruptcy to all creditors that have been listed within the case.

Once a chapter 13 petition is filed the trustee will convene a meeting of creditors approximately 20 to 30 after the date of filing. This meeting is also commonly known as a 341 hearing. The purpose of this meeting, with the debtor under oath, is to allow the trustee and creditors the opportunity to ask questions of the debtor regarding their financial situation and verify the statements made in their petition. All debtors in any bankruptcy case will be required to attend this hearing and answer honestly all questions to the best of their ability. If a married couple jointly filed for bankruptcy protection, both debtors are required to attend the meeting of creditors and answer any questions put before them. To further ensure the impartiality of their judgment, the judge for a bankruptcy case is barred from attending the meeting of creditors. To avoid the discovery of issues at the creditors’ meeting it is important that the debtor be sure that all the information contained in their petition and schedules are complete and accurate. Comprehensive and honest communication with your chosen attorney in the preparation of your petition and during the time leading up to your meeting of creditors is the best way to prevent surprises during your hearing. If an individual is seeking to save their home from foreclosure they can utilize a chapter 13 proceeding to do so. The automatic stay which takes effect at the time the case is filed will stop the foreclosure from proceeding. The utilization of the chapter 13 plan payments can further assist the debtor by bringing the past-due payments current over the life of the chapter 13 plan. You should be aware that if the mortgage company is able to complete the foreclosure sale prior to the debtor filing the petition, the debtor is very unlikely to be able to save the home. Should preventing is the foreclosure of your home be your primary goal, it is important to understand  that in addition to filing for bankruptcy protection in a timely manner, it is necessary that once filed you be able to meet the monetary obligations of your regular mortgage as well as the chapter 13 plan payments.

Chapter 13 - Making the Plan Work

Once you have achieved the confirmation of your chapter 13 plan by the court, the success or failure of the plan is primarily in the debtor’s hands. It cannot be stated strongly enough that the debtors ability to make timely regular payments to the trustee will determine the success or failure of a chapter 13 plan. Without approval of the trustee, the debtor will not be allowed to incur any new debts during the life of the plan. And though the confirmation of the plan may entitle the debtor to retain specific assets, it does so as long as the debtor remains current in the payments. This constraint helps to ensure that any additional debts will not compromise the debtor's ability to meet their obligations under the chapter 13 plan. Should the debtor fail to meet the obligations of the plan by not making the scheduled payments by the date due each month, the court will move to dismiss the case. If the debtor finds that during the course of the chapter 13 they are no longer able to meet the obligations of the plan, they may convert their case to a chapter 7 bankruptcy.  In order to realize the greatest benefit and avoid unintended consequences, it is strongly recommended that the debtor discuss the ramifications of such a conversion with a reputable bankruptcy attorney.

Chapter 13 - The Discharge

In order to fully understand the scope of the chapter 13 discharge available to you, debtors are advised to consult reputable legal counsel prior to filing.

The debtor will be permitted a discharge of their debts once the they complete the chapter 13 payment plan and so long as the following criteria have also been met: (1) has not received a discharge in a prior case filed within the specified time frame of two years for prior chapter 13 cases and four years for prior chapter 7, 11 and 12 cases; (2) has completed an approved course in financial management; and (3) if applicable, certifies that all domestic support obligations that came due prior to making such certification have been paid. Once the court has filed notice and held a hearing, the court will enter the discharge once if it has been determined that there is no reason to believe there is any pending circumstance that could incur a limitation on the debtor's homestead exemption.

A bankruptcy discharge releases the debtor from obligations for any debts provided for by the plan or precluded (under section 502), with explicit exceptions. Any creditor that is provided for in part or in full under the chapter 13 plan are barred from initiating or continuing any legal or other collection action against the debtor in the interest of a discharged debt.

A successfully completed chapter 13 bankruptcy discharges the debtor and frees them from all debts provided for within the plan or disallowed under the bankruptcy code, with the exception of specific forms of debt. The following are some examples of the types of secured debt that are not discharged in a chapter 13 such as: a mortgage, obligations for court-ordered maintenance such as alimony or child support, most taxes, most forms of government funded or guaranteed educational loans or benefit overpayments, obligations incurred through death or personal injury due to the debtor driving while intoxicated or under the influence, and restitution or a punitive fine included as part of a sentence in the debtor's conviction of a crime. To the degree that specific debts are not paid in full through the plan, the debtor should expect to still be responsible for these debts once the bankruptcy case has closed. These types of debt will be discharged unless the creditor files in a timely manner and prevails in an action to have such debts declared nondischargeable; debts for money or property obtained by false pretenses, debts for fraud or defalcation while acting in a fiduciary capacity, and debts for restitution or damages awarded in a civil case for willful or malicious actions by the debtor that cause personal injury or death to a person. In a chapter 13 case the discharge of debts available is somewhat broader than those available within a chapter 7 case. Debts not dischargeable in chapter 7 but dischargeable in a chapter 13 include, debts arising from property settlements in divorce or separation proceedings, debts for willful and malicious injury to property (as opposed to a person), and debts incurred to pay nondischargeable tax obligations.

The Law Offices of
Stan E. Riddle

Fremont Plaza Shopping Center
39275 State Street
Fremont, CA 94538
Main: (510) 868-1765
map and directions >

Fremont Plaza Shopping Center