CHAPTER 13 BANKRUPTCY

What is Chapter 13 Bankruptcy?

Chapter 7 and Chapter 13 are the most common types of bankruptcy protection there are for consumers. Chapter 7 is known as a “liquidation” bankruptcy and Chapter 13 is a repayment or reorganization plan.

Discharge of unsecured regular debt such as credit cards and personal loans is usually the end result in chapter 7 and chapter 13. In addition to Discharge, Chapter 13 provides certain functions that can’t be done in chapter 7, such as, repay (cure) mortgage or Homeowners Association arrears (past due payments) to avoid or stop foreclosure; cure car payment arrears to stop repossessions, and in certain situations reduce the car loan principal balance owed and/or interest rate; repay taxes or domestic support obligations (child support and/or alimony).

Chapter 7 is quicker and cheaper to handle than chapter 13. Therefore, it should be the preferred option for those who qualify (under a certain household income threshold) and don’t need to take advantage of the functions that can only be accomplished in chapter 13.

Therefore, if you are behind on your mortgage or car payments, facing foreclosure, owe taxes or domestic support obligations (child support and/or alimony) you should contact a Honolulu bankruptcy attorney to help you through this process, and keep reading because a Chapter 13 bankruptcy may be just what you need.

Does this sound like you?

  • You own your home and you want to keep it
  • You have past due payments on your mortgage or Homeowners Association dues, but you can’t catch up because of the late fees and penalties
  • Creditors are calling you to ask for payments
  • You have fallen behind on your car payments and you can’t catch up
  • You have more than $10,000 in credit card debt and/or personal loans
  • You have overdue tax payments
  • Your debt is overwhelming, and you can’t seem to keep up

Chapter 13 bankruptcy is typically a three-to-five-year monthly repayment plan that can help most individuals cure these obligations, stop foreclosures, stop repossessions and garnishments, and eliminate certain unsecured debts.

Many high-income earners who don’t qualify for chapter 7 can use Chapter 13 to eliminate a substantial portion of their unsecured debts or repay it at 0% interest vs. the typical 20%+ credit card interest rate. And like chapter 7, you are protected from your creditors contacting you to collect their debt as soon as your case is filed and while the case is active. 

What qualifies an individual for Chapter 13?1

  • You must have no more than $419,275 in unsecured debt.
  • Have no more than $1,257,850 in secured debts, which includes mortgages and car loans
  • You must be up to date on all your tax filings (income, GET, etc.) at the time of filing or within a couple of months after we file your case
  • Have enough income to pay for your current obligations and living expenses plus sufficient disposable income to make your plan payments
Square-One-Legal-bankruptcy-attorney-honolulu-chapter-13.

What happens in Chapter 13 Bankruptcy?

If you are thinking about inquiring, here is what you might expect to happen in a typical Chapter 13 case:

  • During your consultation, we will ask a series of questions to help determine what direction we should take to best resolve your financial problem
  • If a Chapter 13 repayment plan is the best option for you, we’ll help you fill out some paperwork and determine the best repayment plan and what your monthly payments could be.
  • Before your paperwork is filed with the Hawaii Bankruptcy Court, you’ll be required to take a credit counseling course
  • When you file your Chapter 13 case, the “Automatic Stay” goes into effect. Meaning, your creditors are prohibited from contacting you by any method to collect a debt. That includes contact by phone, mail, email, even text. They can, however, continue to send you statements of your accounts and relevant information pertaining to your ongoing obligations, such as mortgage payments and car payments – but not any attempt to collect a debt. If they do, you should let your attorney know right away.
  • The appointed Trustee to your case may ask for additional documentation, and your attorney will work with you on that.
  • The court will notify your creditors of your Chapter 13 case and the creditors will be given a specific time frame to submit their claims for what you owe them.
  • Within 30 days of your filing, you must make your first monthly plan payment. Being sure to continue every month and make your payments on time.
  • You and your attorney will then attend the Meeting of the Creditors. This meeting will be with the trustee, not with a judge. While it is an official meeting, you can dress informally but make sure you look presentable.
  • A few weeks after the meeting of creditors, the court decides whether to confirm (approve) your plan at the confirmation hearing. You should not be there, but your attorney will appear on your behalf.
  • Once approved you will continue to make plan payments. Make sure they are on time!
    The trustee will send you periodic statements showing what the creditors have claimed you owe and how much money has been paid to them.
  • Every year during your chapter 13 plan you will be required to turn over an extra copy of your state and federal tax returns to the Trustee. If you have a tax refund, you may be required to turn it in to the Trustee, and that amount will be in addition to your regular plan payments. Therefore, it would be in your best interest to monitor your withholdings to make sure that you minimize the amount of tax refund you receive so you can come as close to zero as possible at the end of the year. In this case, it is better to owe a little than get back a lot and turn it over to the Trustee
  • Before you make your final plan payment you must take a required course in Personal Finance Management and provide the certificate of completion to the Trustee.
  • About 36 to 60 months after your plan is approved and all of the payments have been made you will reach the end of the process.
  • Finally, the Hawaii Bankruptcy Court grants your discharge and you will be mailed a formal Notice of Discharge. You may need to provide this document for future financial transactions so make copies and keep it in a safe place.
  • During your consultation, we will ask a series of questions to help determine what direction we should take to best resolve your financial problem
  • If a Chapter 13 repayment plan is the best option for you, we’ll help you fill out some paperwork and determine the best repayment plan and what your monthly payments could be.
  • Before your paperwork is filed with the Hawaii Bankruptcy Court, you’ll be required to take a credit counseling course
  • When you file your Chapter 13 case, the “Automatic Stay” goes into effect. Meaning, your creditors are prohibited from contacting you by any method to collect a debt. That includes contact by phone, mail, email, even text. They can, however, continue to send you statements of your accounts and relevant information pertaining to your ongoing obligations, such as mortgage payments and car payments – but not any attempt to collect a debt. If they do, you should let your attorney know right away.
  • The appointed Trustee to your case may ask for additional documentation, and your attorney will work with you on that.
  • The court will notify your creditors of your Chapter 13 case and the creditors will be given a specific time frame to submit their claims for what you owe them.
  • Within 30 days of your filing, you must make your first monthly plan payment. Being sure to continue every month and make your payments on time.
  • You and your attorney will then attend the Meeting of the Creditors. This meeting will be with the trustee, not with a judge. While it is an official meeting, you can dress informally but make sure you look presentable.
  • A few weeks after the meeting of creditors, the court decides whether to confirm (approve) your plan at the confirmation hearing. You should not be there, but your attorney will appear on your behalf.
  • Once approved you will continue to make plan payments. Make sure they are on time!
    The trustee will send you periodic statements showing what the creditors have claimed you owe and how much money has been paid to them.
  • Every year during your chapter 13 plan you will be required to turn over an extra copy of your state and federal tax returns to the Trustee. If you have a tax refund, you may be required to turn it in to the Trustee, and that amount will be in addition to your regular plan payments. Therefore, it would be in your best interest to monitor your withholdings to make sure that you minimize the amount of tax refund you receive so you can come as close to zero as possible at the end of the year. In this case, it is better to owe a little than get back a lot and turn it over to the Trustee
  • Before you make your final plan payment you must take a required course in Personal Finance Management and provide the certificate of completion to the Trustee.
  • About 36 to 60 months after your plan is approved and all of the payments have been made you will reach the end of the process.
  • Finally, the Hawaii Bankruptcy Court grants your discharge and you will be mailed a formal Notice of Discharge. You may need to provide this document for future financial transactions so make copies and keep it in a safe place.

FAQ

In all the time working with clients, we have found that there are many frequently asked questions. Here are some of them:

Chapter 13 bankruptcy may be a good option if you’re trying to save your home from foreclosure. Chapter 13 bankruptcy allows you to pay off your late and unpaid payments over the length of your repayment plan (3-5 years) if you are approved. Once you file your Chapter 13 petition, the “automatic stay” will stop foreclosure proceedings. The automatic stay remains in effect for the duration of your case except for limited set of circumstances that requires court approval.

If you make all your plan payments and your ongoing mortgage payments, (and association payments if applicable) you’ll avoid foreclosure and should be able to keep your home.

Depending on your plan, typically 36 to 60 months.

It depends on your situation, how much unsecured or secured debt you have, whether you pass the Means Test, and how much or how little household income you have. We can help you determine what is best for you.

It depends. Certain debts must be paid in full (“Must-Pays”), plus a certain percentage of all other debts (“General Unsecured”).

Must-Pays – they are mainly:

  • Back Payments (arrears) such as your mortgage, homeowner’s association, and car loans
  • Certain kinds of taxes (your attorney will explain which ones)
  • Domestic support obligations (child support and alimony type of payments)
  • Government fines such as traffic and parking tickets
  • Your attorney’s fees
  • The Bankruptcy Trustee’s fees
  • Court fees

General Unsecured

  • All debts other than Must-Pays are considered General Unsecured debts
    (such as credit cards, personal loans, medical bills, student loans, etc.)
  • Some people may have to pay all their General Unsecured debts through their Chapter 13 plan, and some pay a tiny fraction of them.
  • Your level of disposable income or non-exempt assets will determine how much of your general unsecured debts will be paid.2

There may be other factors that affect your case and figuring out how much to pay requires a high level of expertise – and you should not attempt to figure this out on your own.

We hope the information provided was helpful and as you can see, filing for Chapter 13 bankruptcy can be a lengthy and complex process and it should not be done on your own. Please contact attorney Ofir Raviv at our office today to schedule your complimentary initial consultation and we can help determine the best solution for you.

1 Debt limits are subject to change. There are certain exceptions to the type and amount of secured or unsecured debt factored in the debt limits eligibility requirements. You should not rely on this information and consult with a bankruptcy attorney to determine your chapter 13 eligibility.

2 Disposable income: You must disclose your household income, from any and all sources, including that of your spouse, in order to determine the net monthly income. Common sources of income could include but not limited to employment, business income, rental income, self-employment, social security, disability, alimony, child support, etc.

You are allowed to deduct reasonable household expenses (reasonable in bankruptcy), and your plan payment cannot be set lower than that amount (income minus expenses). It is not possible to describe every situation here, so consulting a bankruptcy attorney is essential.

Non-Exempt assets: you must disclose all your assets, and by law, you are entitled to certain protections from creditors. For example, most people are able to protect most or all of their retirement accounts. The value of the non-exempt portion must be paid to creditors through the plan.

*Debt limits are subject to change. There are certain exceptions to the type and amount of secured or unsecured debt factored in the debt limits eligibility requirements. You should not rely on this information and consult with a bankruptcy attorney to determine your Chapter 13 eligibility.