- Why Chapter 13 Bankruptcy?
- What is Chapter 13 Bankruptcy?
- What is the Chapter 13 Plan?
- Who is the Chapter 13 Trustee?
- What documents should I provide the Trustee?
- Will the Trustee cost me anything?
- How is my Chapter 13 Plan payment determined?
- What if I receive additional income while in Chapter 13?
- What if I move during my bankruptcy?
- What if I change jobs?
- How do I make Chapter 13 Plan payments?
- How long will I remain in bankruptcy?
- What kind of debts do I have?
- What about my house payments?
- What about my car payments?
- What if I owe someone in my family money?
- May I borrow money while in Chapter 13?
- What if I have a student loan?
- What if I owe alimony or child support?
- May I keep making contributions to my retirement plan? May I keep making payments on my retirement plan loan?
- What about my income taxes?
- What about my income tax refund?
- How do I fulfill the requirement to attend a personal financial management course?
- How can I keep track of my Chapter 13 case?
- May I pay more than required or pay off my case early?
- What happens when my case is over?
Why Chapter 13 Bankruptcy?
You and your attorney should have already discussed your various bankruptcy options before you chose to file a Chapter 13 case. You may have chosen to file a Chapter 13, rather than Chapter 7 liquidation, for several reasons:
- You may have fallen behind on your payments for a secured debt, such as a house or car loan, and you want to keep the asset that is the collateral for a secured debt;
- You may have assets that you own “free and clear,” such as a car without a car loan, and you want to keep these assets rather than have them sold to pay creditors;
- You may have debts, such as certain kinds of taxes and child support/alimony obligations, which cannot be discharged in a Chapter 7 case but may be paid over time in a Chapter 13 case;
- You may be ineligible for a Chapter 7 bankruptcy due to your income;
- You want to repay all or a portion of your debts over time;
- You may have already completed a Chapter 7 case and received a discharge, and as a result you may be ineligible to file another Chapter 7 case for a specific period of time.
What is Chapter 13 Bankruptcy?
Chapter 13 is a type of bankruptcy in which debtors, either individuals or a married couple, pay at least a portion of their debts out of their income, rather than having their non-exempt assets sold to pay creditors. As a Chapter 13 debtor, you are required to make regular payments to the individual who serves as the bankruptcy Trustee who will then pay your creditors according to your Chapter 13 repayment plan. The Trustee authorized by the Bankruptcy Code to administer your repayment plan. Your Chapter 13 Plan is the legal document that you filed with the Court setting forth how much you will repay each of your creditors.
What is the Chapter 13 Plan?
When you filed your Chapter 13 bankruptcy case, you were required to file a Chapter 13 Plan. Simply put, the Chapter 13 Plan states how much you must pay to the Chapter 13 Trustee and to certain secured creditors, and to whom the Chapter 13 Trustee will make disbursements. Creditors that have claims based upon certain kinds of debts must be specifically named in your Chapter 13 Plan. These debts include mortgages, taxes, child support and/or alimony debts, and debts that are secured by personal property, such as a car, furniture or jewelry. If you are behind on your mortgage payments, your Chapter 13 Plan may require you to make up the delinquent payments. Your Chapter 13 Plan may also require you to make your on-going mortgage payments to the Trustee who in turn will make your monthly mortgage payment to your mortgage creditor.
Who is the Chapter 13 Trustee?
The Chapter 13 Trustee is the person who administers your Chapter 13 Plan. The Trustee has several responsibilities including reviewing your bankruptcy petition and schedules for completeness and accuracy, reviewing your proposed Chapter 13 Plan to ensure it complies with the bankruptcy law, examining you at the Meeting of Creditors, making sure your case is in order so he can recommend to the Bankruptcy Court that your Chapter 13 Plan be approved, collecting payments, and distributing those payments to creditors according to the terms of your Chapter 13 Plan. During the three to five year term of your bankruptcy, the Trustee will provide you with an annual report of your Chapter 13 Plan payments, the distribution made by the Trustee to your creditors, and the amount of funds, if any, in the possession of the Trustee.
The Trustee is also responsible for ensuring that you comply with your Chapter 13 Plan after the Court approves it. If you fall behind on your payments, the Trustee will ask the Court to dismiss your case. The Trustee will not remind you of your payment obligations or negotiate with creditors on your behalf. If a creditor contacts you, if one of your assets is repossessed or foreclosed upon, or if your mortgage company reports that you have fallen behind on payments, contact your attorney, not the Trustee.
The Trustee’s office does not provide information to credit bureaus and will not become involved in any disputes you may have with credit bureaus. The Trustee's office does not provide legal advice. If you have legal questions, you should contact your attorney.
Prior to the Meeting of Creditors your attorney should have filed with the court or provided the Trustee's office with the following documents:
- Your recent pay stubs. Recent pay stubs of your spouse may also be required even if your spouse is not filing bankruptcy.
- Your federal income tax return for the most recent calendar year. The recent federal income tax return of your spouse may also be required even if your spouse is not filing bankruptcy,
- Affidavit of support if you are receiving regular financial assistance from a friend or family member.
In addition, the Trustee may require additional documents be provided such as savings, checking or other financial account statements, verification of income and expenses, vehicle title or lease agreement, evidence of home or vehicle insurance, or business information. Failure to timely provide these items may prevent the Trustee from conducting a proper analysis of your current financial situation and proposed Chapter 13 Plan; and may result in the Trustee asking the Bankruptcy Court to dismiss your Chapter 13 case.
Once your bankruptcy case has been approved by the Court, you will need to provide the Trustee with a copy of the federal income tax return you file each year while in Chapter 13 bankruptcy. In certain circumstances the Trustee does not require you to submit a copy of your tax return. Your attorney will be familiar with the rules pertaining to providing your federal income tax return to the Trustee.
Will the Trustee cost me anything?
Included in your payment to the Trustee is a fee for administering your case. This fee is a percentage of the money received by the Trustee during the term of your bankruptcy case. For example, if you pay $100 to the Trustee and the Trustee charges $5 as an administration fee then $95 will be available for your creditors. This is not a separate payment you have to make; it is already included in the money you pay to the Trustee. By law, the Trustee's fee can be no more than 10%.
How is my Chapter 13 Plan payment determined?
Your Chapter 13 Plan requires you to make regular payments to the Chapter 13 Trustee. The amount you are required to pay is based upon factors such as your monthly income, allowed living expenses, amount of equity you have in your property, and whether or not your mortgage payments will be made through the Trustee.
What if I receive additional income while in Chapter 13?
Immediately inform your attorney if you receive additional income while in Chapter 13 bankruptcy. This includes pay increases, bonuses, gifts, inheritances, lottery winnings, life or other insurance proceeds, recoveries from legal actions, etc. Your attorney will amend your bankruptcy schedules and plan and file appropriate pleadings with the Bankruptcy Court as required.
If you move during your bankruptcy case, you must first alert your attorney so that he/she may file the appropriate paperwork with the Bankruptcy Court. You must then send this change in writing to the Trustee's office. If you do not notify the Bankruptcy Court and the Chapter 13 Trustee's office, your personal bankruptcy information will continue to be mailed to the address on file.
What if I change jobs?
Immediately tell your attorney and the Trustee’s office if you change jobs. Your attorney should file paperwork with the Court so your new employer will begin withholding your Chapter 13 Plan payments from your paychecks. Immediately letting your attorney know about your new job will help ensure that no interruption in Chapter 13 Plan payments occurs. By making sure payments are not interrupted, you may prevent your case from being dismissed.
How do I make Chapter 13 Plan payments?
If you are employed, the Bankruptcy Court requires a wage order. A wage order requires your employer to withhold funds from your pay and send these funds directly to the Chapter 13 Trustee. You should receive a copy of the wage order from your lawyer. The wage order includes your case number, the amount and frequency of your required payments, and the name and payment address of the Chapter 13 Trustee.
If you are self-employed or your income is from a source such as a pension or Social Security, you are required to send the money yourself to the Trustee on at least a monthly basis.
The Trustee does not accept payments by cash or pay-by-phone; nor does the Trustee have a place where you can make payments in person.
PAYMENTS MUST BE MAILED TO:
Lauren A. Helbling
Chapter 13 Trustee
P.O. Box 593
Memphis, TN 38101-0593
Acceptable forms of payment include money order, bank checks, certified checks, and personal checks. However, if you bounce a check, the Trustee will no longer accept your personal checks.
You may be eligible to participate in the Trustee's online electronic payment program (ePay) or the automatic savings or checking account deduction program. For more information regarding these payment options contact the Trustee's office or your attorney.
Your Chapter 13 Plan payments to the Trustee must start no later than 30 days after filing of your case. If your employer is supposed to withhold money from your paycheck and send it to the Trustee but does not do so, it is your responsibility to make the Chapter 13 Plan payment to the Trustee and to contact your employer and/or attorney about your employer’s handling of your wages.
It is your responsibility to ensure that all Chapter 13 Plan payments are made and that you are current in your payments to the Trustee. The Trustee DOES NOT send reminders. Failure to make payments to the Trustee is grounds for the dismissal of your Chapter 13 case. If your case is dismissed, you will not receive a discharge, your debts will not be forgiven, and your creditors will be permitted to resume collecting the money you owe them.
How long will I remain in bankruptcy?
Debtors are required to remain in their Chapter 13 bankruptcy case for at least 36 or 60 months. This 36 or 60 month term - known as the applicable commitmen period - is shown on page 1 of your Chapter 13 Plan. If however, unsecured creditors are being repaid in full (i.e., 100%), you may be allowed to shorten your case from the minimum 36 or 60 months.
What kind of debts do I have?
Debts on which there is no collateral are sometimes called unsecured debts. These debts would include but are not limited to utilities, credit cards, medical bills and loans to family members. Each unsecured creditor is individually listed in the bankruptcy documents filed with the Court. However, in your Chapter 13 Plan, these creditors are not individually listed by name but instead are grouped together as unsecured creditors. If you are unsure if a debt is secured or unsecured, ask yourself this question: If I don’t pay this debt, is there something the creditor can take away or repossess? If the answer is “yes,” the debt is probably a secured debt, and the creditor and the amount of the debt will have to be addressed in your Chapter 13 Plan.
If the court allows you to exclude your mortgage payment from your Chapter 13 Plan, you are responsible for making the mortgage payment directly to the mortgage company. Your mortgage payment due date will likely be the same as it was before you filed bankruptcy. If the mortgage lender has stopped accepting your payments, you or your attorney should call the mortgage lender to arrange for the lender to start accepting payments. Keep track of all of your cancelled checks, money order receipts, etc., so that, if necessary, you can prove that you have properly tendered your mortgage payments.
What about my car payments?
If you have a car loan, these payments will be included in your Chapter 13 Plan payment you are responsible for making to the Trustee. Your Chapter 13 Plan may also provide for the Trustee to make pre-confirmation adequate protection payments to the creditor. Adequate protection payments are monthly payments to the creditor occurring after the filing of your case but before the Bankruptcy Court approves your Chapter 13 Plan.
If you lease a vehicle and your Chapter 13 Plan provides for continuing the lease, you will be responsible for making all lease payments directly to the creditor. Before the Trustee will recommend your Chapter 13 Plan for approval by the Bankruptcy Court, you may be required to provide the Trustee with proof of your having made the monthly lease payments due the creditor since the filing of your bankruptcy case.
What if I owe someone in my family money?
If you owe money to a family member, you must treat this debt exactly as you treat all your other debts. It is unfair for you to pay a family member back in full while other creditors only get a portion of the money you owe them. You MUST inform your attorney if you owe someone in your family money or if you repaid money to a family member within two (2) years of filing your Chapter 13 bankruptcy case. If you fail to disclose this information in the documents filed with the Bankruptcy Court, you risk having your bankruptcy case dismissed or converted to a Chapter 7 bankruptcy.
May I borrow money while in Chapter 13?
You are prohibited from borrowing more than $500 (or transferring an interest in real estate) without the permission of the Bankruptcy Court. To obtain permission, your attorney must file the necessary documents with the Court and request a hearing before the judge.
This $500 limit is cumulative. For example, if you have already borrowed $200, then you may borrow only $300 more without the permission of the Bankruptcy Court. In most cases, this will require filing a motion with the Bankruptcy Court, a hearing with a Judge, and a Judge's signature on a court order before you may borrow money. If you must borrow money, contact your attorney before signing any loan papers.
WARNING: Because you are in Chapter 13 bankruptcy, some lenders may attempt to take advantage of you by charging very high interest rates and/or closing costs and other fees.
Actions that require the permission of the Bankruptcy Court include:
- Selling your house
- Refinancing your mortgage, even if you get no money from the transaction
- Borrowing money and using your house as collateral
- Financing home improvements
- Financing the purchase or lease of a car
- Borrowing money from family or friends
- Borrowing money from your employer
- Borrowing money against your 401(k) plan
- Borrowing money from a credit union
- Co-signing a loan for anyone
- Taking out a student loan
- Using a credit card
- Using a payroll advance service such as CheckSmart or Check Into Cash
- Leasing, renting, or borrowing money for the purchase of furniture, jewelry, appliances, or audio/video equipment.
What if I have a student loan?
Student loans are generally unsecured debts, and are not treated any differently from debts owed to other unsecured creditors. However, Congress has passed laws that affect the balance of the student loan debt that is not paid during your Chapter 13 Plan. Unlike other unsecured debt that is unpaid in a Chapter 13 Plan with less than 100% repayment, the remainder of the student loan debt is usually NOT forgiven when the discharge is granted upon completion of your Chapter 13 Plan. For example, if your Chapter 13 Plan requires a payment of 75% of the amount owed to your unsecured creditors, your student loan debt will also be paid 75% through the Chapter 13 Plan. When your Chapter 13 Plan is completed, you will still be responsible for the 25% of your student loan debt that was not paid through your Chapter 13 Plan, plus accrued interest.
What if I owe alimony or child support?
Domestic support obligations such as alimony, maintenance and child support are generally priority unsecured debts. The laws regarding these obligations require that the delinquency you owe be included in your Chapter 13 Plan and that you continue to make your ongoing monthly support payments. Before the Trustee will recommend approval of your Chapter 13 Plan, and in order to be eligible for a bankruptcy discharge, you must be current on all domestic support payments that were due since the time you filed your Chapter 13 bankruptcy case.
May I keep making contributions to my retirement plan? May I keep making payments on my retirement plan loan?
You will probably not be allowed to continue making contributions to your retirement plan. However, if your retirement contributions are mandatory, you will likely be allowed to continue making these contributions. Your attorney can advise you if you meet any other exceptions.
Repayments on retirement plan loans will likely be allowed to continue. Not repaying a retirement plan loan may have tax implications for you. Contact your attorney about the tax implications of not repaying a loan from your retirement account.
Once the retirement plan loan is repaid, your Chapter 13 Plan payments to the Trustee will need to be increased by the amount you were using to repay your retirement plan loan.
What about my income taxes?
Before the Trustee will recommend approval of your Chapter 13 Plan you must have filed all applicable federal, state and local tax returns for all taxable periods in the four years prior to your filing your bankruptcy case.
If you have not filed a tax return for several years, or if you have a tax return for a particular year that has not been filed, you should inform your attorney. You will have to file all deliquent tax returns before the Bankruptcy Court will approve your Chapter 13 Plan. The IRS is authorized to estimate how much you owe if you have not filed a tax return for a particular year. In almost all cases, the IRS estimate is considerably higher than the amount you owe, so you may save money by filing your deliquent tax returns. In addition, you may stop certain penalties from accruing when you file delinquent tax returns.
During the term of your bankruptcy case, you are responsible for continuing to file your tax returns and paying taxes in a timely manner. You will need to provide the Trustee with a copy of the federal income tax return you file each year while in Chapter 13 bankruptcy. In certain circumstances, the Trustee does not require a copy of your annual tax return. Contact your attorney with questions about the rules pertaining to providing your federal income tax return to the Trustee.
If you fail to file returns and/or pay your taxes, the IRS and other governmental agencies may file claims in your bankruptcy case, which would disrupt the payments to other creditors, make your Chaper 13 Plan last longer than you planned, and may prompt the Trustee or one of your creditors to file a motion to dismiss your case or convert your case to a Chapter 7.
Each year during your bankruptcy case, you are required to turn over your federal income tax refund to the Trustee. In certain circumstances, you may be permitted to retain a portion or all of the refund. Contact your attorney if you have questions about the rules pertaining to the turnover of your refund.
How do I fulfill the requirement to attend a personal financial management course?
All Chapter 13 debtors must complete a Personal Financial Management course. If you do not complete the course you will not receive a discharge from the Bankruptcy Court even though you may have made all required Chapter 13 Plan payments to the Trustee. Contact your attorney for information you will need to attend and complete the Personal Financial Management course.
How can I keep track of my Chapter 13 case?
Approximately four (4) months after the Meeting of Creditors, the Trustee will send you a Notice of Intention to Pay Claims . This notice lists each creditor that is either listed on your bankruptcy schedules or has filed a proof of claim. It also shows the amount of the claim and whether the claim is secured, unsecured or priority. You should review this notice carefully. Contact your attorney if you have any questions or believe a creditor filed a claim incorrectly as to the amount of the claim or type of claim.
In addition, the Trustee will send you an annual statement of your Chapter 13 case called the Trustee’s Report of Receipts and Disbursements. You should review this statement carefully. The statement details the creditors who have filed claims in your case (and the amount and status of each claim), the amount of money you have paid to the Trustee and the amount of money the Trustee has paid to each creditor.
The Trustee's Report of Receipts and Disbursements also shows your current mailing address in the Trustee's records. If you have moved, it is your responsibility to notify the Trustee's office and your attorney of any change in address. Failure to do so may result in a delay in your receiving important notices, documents and other information concerning your case.
You may also monitor your bankruptcy case through the National Data Center's (NDC) website at www.ndc.org. Access is free and a password is required which may be obtained through the website.
May I pay more than required or pay off my case early?
Paying the Trustee more than the amount your Chapter 13 Plan requires may or may not decrease the length of time it takes to complete your Chapter 13 Plan. Unless you are paying your unsecured creditors in full, your Chapter 13 case is required to run a minimum 36 or 60 months. Contact your attorney if you are considering paying more than required or paying off your Chapter 13 case early.
What happens when my case is over?
When you make your last payment to the Trustee, the Trustee will start the process of closing your case. Upon receipt of your last payment, the Trustee will make sure claims have been paid as provided for in your Chapter 13 Plan and will ask the Bankruptcy Court to release your employer from withholding funds from your pay. Once the Trustee determines that your Chapter 13 Plan has been completed and that relevant provisions of the Bankruptcy Code have been complied with, your case will be closed and a final report will be issued.
Once the Trustee notifies the Bankruptcy Court that your case has been completed, the Bankruptcy Court will determine if a discharge may be issued. It may take more than three (3) months from the time you make your final payment to the Trustee before the Bankruptcy Court determines if a discharge may be issued. If you have paid money to the Trustee in excess of the amount needed to complete your Chapter 13 Plan, the excess funds will be returned to you after your case is closed.
Once your case is completed, you are responsible for making the on-going mortgage payments that were being paid by the Trustee. The Trustee will notify you in advance of the completion of your case so that you may plan for making your monthly mortgage payments on your own.