A Chapter 13 bankruptcy is a reorganization where the person/married couple create(s) a voluntary repayment plan of their debts. A person or married couple who file for Chapter 13 must have regular income, which can include wages, business income, rental income, social security income, or any combination. Your unsecured debts must be less than $307,675 and secured debts are less than $922,975. 11 U.S.C. § 109(e). A corporation or partnership may not be a chapter 13 debtor.
Step One: Get prepared to file your Chapter 13 bankruptcy case. In order to file your bankruptcy case, you must complete the following documents:
- Voluntary Petition
- Certificate of Credit Counseling
- Summary of Schedules, Schedules A through J, and the Declaration of Schedules
- Statement of Financial Affairs
- Statement of Intention
- Statement of Social Security Number
- Statement of Current Monthly Income (see below)
- Verification of Creditor Matrix
- Disclosure of Compensation of Attorney, if filing with an attorney
- A list of your creditors
- A Chapter 13 Plan (see below)
You are also required to pay a filing fee to the Bankruptcy Court. Currently a fee for filing a Chapter 13 Bankruptcy case is $313.
Step Two: Calculate your disposable income for your Chapter 13 Bankruptcy. The amount you have to pay back in your Chapter 13 Repayment Plan is based upon an amount called “disposable income”. Disposable income is a calculation of how much you “should” have left over at the end of the day. I say “should” have left over at the end of the day because disposable income is calculated based on national standard deductions, not based on what your bank account actually spends.
The disposable income calculation starts with your gross income. You must also be a wage earner in order to file a Chapter 13. Then, certain expenses are deducted based on an IRS deduction. The deduction is based upon a national average, taking into consideration the metropolitan area you live.
- For example, the IRS standard deduction for a 2 person household for food, clothing, and other expenses is $1,202.00 per month. This means $1,202 is deducted from your gross monthly income to determine your disposable income.
- Other deductions also reduce your disposable income. These items include health insurance, mortgage/rent expense, ownership of a car, taxes, court-ordered payments, child care, care of the chronically ill, home energy expenses, education for minor children, etc.
The issue with standard deductions is that they are standard and not objective. For example, in the deduction above for food, the standard deduction is $1,202. This means that if you pay only $800 a month for these items, you have the benefit of the extra $402 being deducted as an expense, even though you are not really spending it. On the flip side, if you spend $1,500 for these items, only $1,202 may be deducted, leaving you with a deficit of $298 that you should have available, but do not.
At the end, the calculation provides what your disposable income should be. That amount must be put towards the plan. In some cases, that amount is $0.00. In some cases, the plan payment is $200.00/month. Some clients pay 100% of their unsecured debt + 5.25% interest (the highest current maximum).
Step Three: Create your Chapter 13 Bankruptcy Repayment Plan. The voluntary Repayment Plan is created by you or your attorney and helps you to develop a plan to repay all or part of their debts. The Repayment Plan allows you to make monthly installments to creditors. The Repayment Plan takes all of your debts into account and you also pay a 10% fee for the Trustee to manage your payments. A Repayment Plan usually takes 36 months or 60 months to complete. A Repayment Plan, to be successful, must be approved by the Trustee and confirmed by the Court.
Forms are provided by the Court to help you create your Chapter 13 Repayment Plan. The most up to date form can be found here: http://www.flmb.uscourts.gov/proguide/documents.asp?ID=207
Step Four: File your Chapter 13 Bankruptcy documents with the Court and pay your filing fee.
Step Five: Attend your 341 meeting of creditors for your Chapter 13 Bankruptcy case.
A meeting of creditors is called a “341 Meeting” because that is the section of the Bankruptcy Code that requires the meeting to be held. A Meeting is where a Debtor appears before the Trustee to answer questions about their petition, schedules, and statements, under oath.
The meeting is also an opportunity for the Trustee to review the information you provided, confirm the information is correct, and ask any additional questions they may have.
The Meeting of Creditors is This meeting usually lasts 10-15 minutes.
You should always arrive to your 341 meeting of creditors EARLY. You should consider the time it will take to park, pay the meter, find the building, go through the metal detector, use the restroom, and find your room before your meeting is scheduled to start.
Here is an example of some of the questions you can expect to have a Trustee ask you at a 341 meeting of creditors:
- Did you read and sign your petition and schedules?
- Did you list everyone that you owe money to in your bankruptcy?
- Is all of the information in your petition and schedules true and correct?
- Do you have any changes that you need to make on your petition and schedules?
- Can anyone sue you for money?
- Have you paid money to, retained, or consulted any other attorney in the past year regarding any legal matter?
- Do you pay or receive child support?
- Are you involved in any class action lawsuits, such as credit card transaction lawsuits, medical recall lawsuits, or asbestos lawsuits?
Here is a video example of a 341 meeting of creditors: http://www.flmb.uscourts.gov/videos/bk_basics_creditors.htm
Step Six: Take your Debtor Education Course as one of the last steps for your Chapter 13 Bankruptcy case. (This is the second counseling course required for bankruptcy filers). Make sure to file the Certificate with the Court.
Step Seven: Get your Chapter 13 Bankruptcy Plan confirmed.
Much of the bankruptcy process is administrative and is conducted away from the courthouse. This administrative process is carried out by a trustee who is appointed to oversee the case. The Chapter 13 process is extremely administrative, as you will be making payments regarding your case through the Chapter 13 Trustee to your creditors. Your Chapter 13 payment is based on your anticipated income over the life of the Chapter 13 plan.
The Chapter 13 Trustee will file an Unfavorable Recommendation for your case if it is not ready for confirmation. This Unfavorable Recommendation will tell you the steps you need to take in order to fix your Chapter 13 Plan so that the Court can confirm it. If you do not take the steps to fix your Chapter 13 Plan, your Chapter 13 case may get dismissed. Remember, a Chapter 13 Trustee cannot give you legal advice.
Step Eight: Make all your Chapter 13 Bankruptcy payments. Once your Chapter 13 Plan is confirmed by the Court, the only remaining thing to do is to make your payments. You will receive an Order Confirming your Chapter 13 Plan. The Order will tell you how many TOTAL months you need to pay your plan payments for.
Make sure to keep track of every payment you make, whether in a notebook, with your money order stubs, or on your computer. If there is ever a question as to whether you made all the payments or not, you will be able to prove you made all of your payments. After your last payment is made, you will then receive a Order of Discharge from the Court. The Order then wipes out any other debts you have remaining (with some exceptions). Congratulations! You completed your Chapter 13 case.
Meeting with an experienced bankruptcy attorney can ease your fears and ensure your paperwork, and most importantly your Chapter 13 plan is done correctly. There is no substitution for the advice an experienced bankruptcy attorney can provide. Most debtors risk dismissal of their case if they do not have an understanding in what a successful Chapter 13 plan looks like. You may find a great value in the fees you pay for an attorney to handle your paperwork correctly and counsel you about your Chapter 13 plan. Contact Feher Law to set up your complimentary bankruptcy consultation through our website, https://feherlaw.com/contact-feher-law-st-petersburg-florida, at 727-359-0367, or via email at Kfeher@FeherLaw.com.
It is important to note that the numbers discussed in this blog, including but not limited to filing fees, standard deductions, and debt limits change often. You can find the most up to date information on national standard deductions here: https://www.justice.gov/ust/means-testing/20180501