Figure 1THINGS EVERY CHAPTER 13 DEBTOR SHOULD KNOW

A chapter 13 bankruptcy case is a long process. There is little pleasure to being a debtor or a claim holder in a Chapter 13 bankruptcy case. It requires commitment, patience, and determination to complete a plan. Bankruptcy may not be the best long-term best choice for consumer debtors in ordinary financial distress and it is often possible to get control of your finances without a bankruptcy petition. Other, non-bankruptcy alternatives should be considered before filing a Chapter 13 case. If you are considering filing a Chapter 13 case, you should consider the following facts. Ask your attorney to explain these Chapter 13 realities.

1. Chapter 13 is bankruptcy. Even though a debtor pays debt over time, it is still reported as bankruptcy and future creditors will treat it as such.
2. Chapter 13 takes a long time. A Chapter 13 plan runs at least three years and in most cases up to five years. It will take patience and dedication to complete your plan.
3. Chapter 13 requires discipline. The debtor must continuously work to make sure the plan is successful. You will have to make all payments, make annual reports to the Trustee, report changes in income. It is work and takes determination to complete a Plan.
4. There are alternatives to bankruptcy. Bankruptcy may not be your only option, non-bankruptcy solutions and filing under a chapter other than Chapter 13 are possible. Discuss non-bankruptcy solutions to debt with your attorney.
5. You must be completely honest. Every debtor, under penalty of perjury, is required to fully, honestly and in good faith, disclose, all income, all assets, all debts both before the case is filed and after the case has been approved.
6. Multiple court appearances will be required. At a minimum, a debtor is required to appear at two hearings at the court. A meeting of creditors, and a confirmation hearing. A debtor may also be required to attend other hearings on the valuation of collateral, relief from the stay, and the like if those are issues that arise. In many cases, they do not.
7. The debtor must make payments. Chapter 13 is not free. The debtor pays for everything—attorneys’ fees, trustee’s fees, payments to creditors, interest, and so forth. Payments to the plan will be required. Debtors should be warned that payments will be deducted from their paycheck—while not a garnishment, it may feel like a garnishment, and that discomfort will last the life of the plan. Payments must be made even if not automatically deducted from the debtor’s paycheck. The debtor is responsible for seeing that the trustee receives what is required by the plan even if it means the debtor must carry a portion of each paycheck to the trustee’s office in person.
8. Your payments are deducted directly from your paycheck. Chapter 13 cases are funded through payroll deduction orders to debtors’ employers. Your employer will know of your Chapter 13 case. Federal law prohibits your employer from any discrimination against Chapter 13 debtors.
9. Family budgeting will be required. A debtor must prepare a budget of family income and expenses and then live within that budget for the life of the Chapter 13 plan. For many debtors, family budgeting is unknown and discomforting. The debtor accustomed to spending $50 a month on hair styling should know before filing a case that lifestyle changes may be required if confirmation and consummation of a plan are to be realized.
10. Luxury items may be lost. The debtor may have to choose between confirmation of a Chapter 13 plan and keeping luxury items that fall outside reasonable maintenance and support for the debtor and the debtor’s family. Chapter 13 debtors are not permitted to pay for luxury automobiles or the like through the plan or deduct their cost from income when calculating “disposable income” to be paid into the plan.
11. There will be no more credit. In the Eastern District of Michigan, Chapter 13 debtors are prohibited from incurring a debt of more than $2,000.00 without court approval.
12. The trustee will be watching. The debtor will be subject to the scrutiny of the Chapter 13 trustee for the duration of the case. The trustee can be expected to police the case to monitor the debtor’s performance, to occasionally communicate with the debtor and require information from the debtor, to be a presence in the debtor’s life for years.
13. The debtor is protected from creditors. The automatic stay protects the debtor and any codebtors for the duration of the Chapter 13 case. Garnishments stop, repossession stop, foreclosures are prohibited, and so forth. Creditors cannot contact the debtor.
14. The debtor remains in control but has fiduciary responsibilities. A Chapter 13 debtor remains in possession and control of all property. However, the debtor is required to use and maintain that property with a higher level of care to which the debtor may be accustomed.
15. Secured claim holders can be forced to accept reduced payments. The power to change the terms of loans that are secured by collateral is often the principal attraction of a Chapter 13 case. While there are some restrictions in a Chapter 13 case, a secured claim will be fixed at the value of the collateral, and that value will be paid, with interest, over time. The debt that exceeds the value of the collateral is paid with unsecured claims and often receives “pennies on the dollar”. In many cases, the loan’s terms may be changed, including the amount of the monthly payment, length of the loan term, and the interest rates may be changed.
16. Unsecured claim holders can be paid over the life of the plan.
    Unsecured claim holders are entitled to receive at least what they would be paid in a Chapter 7 case, but that amount can be paid over the life of the plan, and the Chapter 13 debtor has great control over the timing and amount of payments to unsecured claim holders. Unsecured claim holders receive only the amount that they would receive upon if you had filed a Chapter 7.
17. Codebtors may be protected. If your plan proposes to pay a debt, that creditor may not take any collection actions against a codebtor in a Chapter 13 case. This is a great benefit to the debtor with friends, relatives, or coworkers who have co-signed the debtor’s obligations.
18. Utility cutoffs. Chapter 13 can help deal with utility service problems. If a utility is threatening to cut off services, a Chapter 13 filing buys the debtor 20 days in which to come up with a reasonable deposit or otherwise to satisfy the utility of the likelihood of paying future bills. If utility service is already interrupted, Chapter 13 can provide a framework for reestablishing utility service that does not include immediate payment of the full balance due.
19. Negotiating with creditors. The filing of a Chapter 13 case shifts responsibility for dealing with creditors to the debtor’s counsel and the trustee. Debtors need to understand that creditors should not be contacting them and that they should not be contacting creditors.
20. Loss of job or employment instability. Chapter 13 is based on periodic payments to a trustee. Any interruption in the debtor’s job or loss of regular income upsets the prospects for the consummation of a plan. To make your plan work, a debtor may have to accept or continue to work in an undesirable job. The debtor must report any reduction (or increase) in hours or salary to counsel. The failure to report problems or improvements in employment can jeopardize the Chapter 13 case.
21. Illness, temporary disability, and pregnancy. Illness, injury, and pregnancy can have a traumatic effect on a family’s income and expenses, but they are manageable in a Chapter 13 case. A planned interruption in family income and planned additional expenses can be dealt with if the debtor’s counsel is informed.
22. Maintaining insurance. The debtor must insure all collateral under the plan. Lapses in insurance during the Chapter 13 case may lead to disruptive and expensive motions for relief from the stay, to convert, or to dismiss. The cost of insurance must be budgeted.
23. Divorce and other marital problems. Divorce is a principal cause of financial distress, and marital problems can threaten a Chapter 13 case. The debtor should be encouraged to communicate any serious marital problem with counsel before a domestic disaster leads to the demise of the Chapter 13 case.
24. Tax returns and tax refunds. The debtor remains responsible for filing tax returns both before and after they file a bankruptcy case. A debtor must turn over pre-filing and post-filing tax returns to the Trustee and must report future income tax refunds to the Trustee and may have to pay all tax refunds received by the debtor during the case to the Trustee.
25. Changes of address. The debtor must inform counsel and the Chapter 13 Trustee of any change of address until the case is closed.
26. Signing documents. The debtor must sign the petition, Schedules, and Statement of Financial Affairs.
    These documents are not usually signed during the first visit to your counsel’s office. A debtor will likely have to return to the attorney’s office or sign the documents by mail. A debtor signs the bankruptcy documents under penalties of perjury. Filing false information is a crime.
27. Modification. As a debtor’s circumstances change, a debtor may change their plan both before the final confirmation and after the plan is confirmed by the Court.
28. Conversion or dismissal.
    Chapter 13 is voluntary and may be dismissed at any time or a debtor may convert their case to Chapter 7 at any time.
29. Discharge. If the debtor completes payments under a confirmed Chapter 13 plan, the broadest discharge available under the Bankruptcy Code will be realized. The discharge includes claims that would not be dischargeable under other chapters and includes claims that are compromised and claims that are not paid because no proof of claim is filed.
30. Postpetition claims. If a debtor has to use credit after the case is filed if credit is necessary to the success of the debtor’s plan and if permission of the Court is obtained, that debt may be managed through the plan as if it were a claim arising before filing.

Source: Keith M. Lundin & William H. Brown, Chapter 13 Bankruptcy, 4th Edition, Appendix A, Sec. Rev. Apr. 14, 2009, www.Ch13online.com.

BANKRUPTCY LAW IS A FEDERAL LAW. THIS SHEET GIVES YOU SOME GENERAL INFORMATION

ABOUT WHAT HAPPENS IN A BANKRUPTCY CASE. THE INFORMATION HERE IS NOT COMPLETE.

YOU MAY NEED LEGAL ADVICE.

When You File Bankruptcy

You can choose the kind of bankruptcy that best meets your needs (provided you meet certain qualifications):

• Chapter 7 – A trustee is appointed to take over your property. Any property of value will be sold or turned into money to pay your creditors. You may be able to keep some personal items and possibly real estate depending on the law of the State where you live and applicable federal laws.
  
• Chapter 13 – You can usually keep your property, but you must earn wages or have some other source of regular income and you must agree to pay part of your income to your creditors. The court must approve your repayment plan and your budget. A trustee is appointed and will collect the payments from you, pay your creditors, and make sure you live up to the terms of your repayment plan.
  
• Chapter 12 – Like chapter 13, but it is only for family farmers and family fishermen.
  
• Chapter 11 – This is used mostly by businesses. In chapter 11, you may continue to operate your business, but your creditors and the court must approve a plan to repay your debts. There is no trustee unless the judge decides that one is necessary; if a trustee is appointed, the trustee takes control of your business and property.
  

If you have already filed bankruptcy under chapter 7, you may be able to change your case to another chapter.

Your bankruptcy may be reported on your credit record for as long as ten years. It can affect your ability to receive credit in the future.

What Is a Bankruptcy Discharge and How Does It Operate?

One of the reasons people file bankruptcy is to get a “discharge.” A discharge is a court order which states that you do not have to pay most of your debts. Some debts cannot be discharged. For example, you cannot discharge debts for–

• most taxes;
  
• child support;
  
• alimony;
  
• most student loans;
  
• court fines and criminal restitution; and
  
• personal injury caused by driving drunk or under the influence of drugs.
  

The discharge only applies to debts that arose before the date you filed. Also, if the judge finds that you received money or property by fraud, that debt may not be discharged.

It is important to list all your property and debts in your bankruptcy schedules. If you do not list a debt, for example, it is possible the debt will not be discharged. The judge can also deny your discharge if you do something dishonest in connection with your bankruptcy case, such as destroy or hide property, falsify records, or lie, or if you disobey a court order.

You can only receive a chapter 7 discharge once every eight years. Other rules may apply if you previously received a discharge in a chapter 13 case. No one can make you pay a debt that has been discharged, but you can voluntarily pay any debt you wish to pay. You do not have to sign a reaffirmation agreement (see below) or any other kind of document to do this.

Some creditors hold a secured claim (for example, the bank that holds the mortgage on your house or the loan company that has a lien on your car). You do not have to pay a secured claim if the debt is discharged, but the creditor can still take the property.

What Is a Reaffirmation Agreement?

Even if a debt can be discharged, you may have special reasons why you want to promise to pay it. For example, you may want to work out a plan with the bank to keep your car. To promise to pay that debt, you must sign and file a reaffirmation agreement with the court. Reaffirmation agreements are under special rules and are voluntary. They are not required by bankruptcy law or by any other law. Reaffirmation agreements–

• must be voluntary;
  
• must not place too heavy a burden on you or your family;
  
• must be in your best interest; and
  
• can be canceled anytime before the court issues your discharge or within 60 days after the agreement is filed with the court, whichever gives you the most time.
  

If you are an individual and you are not represented by an attorney, the court must hold a hearing to decide whether to approve the reaffirmation agreement. The agreement will not be legally binding until the court approves it.

If you reaffirm a debt and then fail to pay it, you owe the debt the same as though there was no bankruptcy. The debt will not be discharged, and the creditor can take action to recover any property on which it has a lien or mortgage. The creditor can also take legal action to recover a judgment against you.

IF YOU WANT MORE INFORMATION OR HAVE ANY QUESTIONS ABOUT HOW THE BANKRUPTCY LAWS AFFECT YOU, CALL US FOR A FREE CONSULTATION

Bredow Law PLC (248) 795-5516

Click here for more information about Chapter 7 or Chapter 13 Bankruptcy

Bankruptcy is a powerful tool for individuals and their families to eliminate debt and to recover from financial hardship. But, filing chapter 7 bankruptcy has risks attached to it. It may not be the best solution for the debt problems that some debtors have.

First, chapter 7 generally won’t help you stop a foreclosure or repossession. If you are facing foreclosure or repossession and want to keep the property, chapter 13 may be the better option.
Second, when an individual files a chapter 7 case the court appoints a “trustee” who has the power to sell certain kinds of property of the debtor. The trustee’s job is to determine what, if any, of the debtor’s property, can be sold at a profit. If there is, the profit may be distributed to creditors. For most debtors, this never happens because the bankruptcy law gives generous allowances that allow debtors to protect most kinds of property from the trustee. But, for those debtors who may own property that is worth more than those generous allowances, there is a risk that the trustee may sell it. If the debtor doesn’t want to lose that property, then chapter 7 may not be the best solution. Your Bredow Law attorney’s primary job is to help you identify your property and help you protect it.
Second, you must qualify to file chapter 7 and some debtor’s do not qualify for chapter 7 relief. A bankruptcy court may dismiss a chapter 7 case filed by an individual with non-business debt if the court finds that the granting a discharge of debt would be an abuse of chapter 7. 11 U.S.C. § 707(b). What is abuse? The Bankruptcy Code requires debtors to qualify to file a chapter 7 case. The bankruptcy law requires the debtor to pass a “means test” to determine whether the chapter 7 filing is “presumptively abusive”. The bankruptcy court will consider debtor’s chapter 7 filing is presumptively abusive:

1) If a debtor’s “current monthly income” is more than the state average household income for a family of the same size as the debtor’s family, and
2) if the debtor has more than $30,800.00 in nonpriority unsecured debts, the debtor has the ability to pay 25% of the total of those debts over the next 5 years (at least $128.34), or regardless of the amount of the debtor’s unsecured debt, the debtor has the ability to pay to unsecured creditors $12,850.00 from their current monthly income over the next 5 years.
Because chapter 7 is not for everyone, debtors should be aware that there are alternatives to liquidation by seeking chapter 7 relief.

Debtors who are engaged in business, including corporations, partnerships, and sole proprietorships, may remain in business and avoid liquidation. Such debtors should consider filing a petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment or may seek a more comprehensive reorganization. Sole proprietorships may file a chapter 11 case but may also be eligible for relief under chapter 13 of the Bankruptcy Code.

Chapter 13 relief is most appropriate for individual debtors who are employed and/or have regular income. Sole proprietors and individual debtors may modify their debts under chapter 13 of the Bankruptcy Code. A particular advantage of chapter 13 is that it provides individual debtors with an opportunity to save their homes from foreclosure or their cars from repossession by allowing them to “catch up” past due payments through a payment plan.

Debtors should also be aware that an attorney can often make out-of-court agreements with creditors to pay off debts at a lower amount or on monthly terms that the debtor can afford. These options may provide an alternative to a bankruptcy filing.

Dealing with consumer credit problems starts with the selection and consultation with a qualified Debt Relief Attorney who specializes in bankruptcy. There can be unfortunate consequences if the law and rules are not followed or if a proper pre-petition analysis of the debtor’s income and assets is not performed properly. Bredow Law specializes in helping consumers get relief from their debts. When you are a Bredow Law client, our experience and skill allow us to give you the highest quality and most cost-effective bankruptcy representation. If you or someone you know has questions about bankruptcy, Contact Bredow Law at (248) 795-5516 or by email info@bredowlaw.com
*Source: Administrative Office of the U.S. Courts. http://uscourts.gov