Filing for Chapter 13

Before you file for bankruptcy, you must attend credit counseling.

Then, you must:

• Pay a fee
• Provide the bankruptcy court with information about income, debt, expenses, lenders, and creditor holdings of secured and unsecured debt (see below)

Once the court receives the appropriate paperwork, a trustee will review the case.

In Chapter 13, the trustee will manage your case and get you from A to Z. They will request information from you, communicate with creditors, and hold a creditors meeting.

You are responsible for filing a repayment plan with the court. Your trustee will also look this over and help answer questions along the way.

To petition for Chapter 13 bankruptcy, all debtors must file required forms and documents with the local bankruptcy court in their area. You will provide the court with information about income from all sources, a list of creditors, real and personal property, and living expenses. You must also submit the following documents:

• A certificate of completion or proof you attended credit counseling
• Your most recent tax return
• Four years of proof that you filed taxes
• A repayment plan

When filing for Chapter 13, you must pay a filing fee and administrative fee. As of 2020, the cost to file Chapter 13 is $310.

You can pay the fees in up to four installments as long as the court receives the last installment within 120 days from the date that you filed for bankruptcy. You can ask the court for an extension of up to 60 days if necessary.

Failing to pay the fees may result in the dismissal of your case.

Chapter 13 bankruptcy rules state that a creditor may no longer pursue collection activities when someone has filed for bankruptcy.

An "automatic stay" takes effect once you file paperwork and pay the filing fee. An automatic stay bans creditors from further attempts to collect a debt during the bankruptcy.

This also means:

• Any lawsuit proceedings must stop
• A creditor may not report the debt to credit reporting agencies
• Your property and income may be temporarily safe from seizure or wage garnishment
• In some cases, this may stop a foreclosure on your home

Collection activities may continue for spousal and child support, tax debt, and pension loans, however.

To qualify for Chapter 13 bankruptcy, you must repay all secured creditors and priority debts in full. They also must repay a portion of the amount owed to unsecured creditors. Unsecured debt includes money owed on a credit card.

A Chapter 13 bankruptcy places a filer's debt into a repayment plan. A bankruptcy court will not approve a plan unless you repay all priority and secured debt in full.

The repayment plan must also require you to repay unsecured creditors in an amount equal in value to the filer's non-exempt property.

Non-exempt property includes any interest held in real property, business assets, and artwork. Once a Chapter 13 repayment plan begins, a trustee will disburse the monthly payment made by you to the creditors each month.

A bankruptcy court almost always makes you repay student loan debt. Chapter 13 bankruptcy rules treat student loan debt just like a priority debt – it must be paid back in full (the same is true for back taxes and child support payments). Student loan debt is only dischargeable upon a showing of "undue hardship."

Typically, it is difficult to convince a bankruptcy court of undue hardship. They will consider factors like:

• Poverty
• Permanent illness or disability
• A good-faith effort to repay the loan

To have a student loan debt dismissed, you must file a separate action in bankruptcy court — called a "Complaint to Determine Dischargeability of a Debt."

If you miss a scheduled payment, Chapter 13 bankruptcy rules allow the trustee to file an "action for dismissal" with the bankruptcy court. This happens because you are breaking your court-approved Chapter 13 repayment plan. Your bankruptcy trustee can ask the courts to dismiss the case if you stop paying your creditors.

You may be able to prevent the dismissal of a case by:

• Establishing your ability to repay the debt under the current plan
• Requesting that the court approve a new plan

If the bankruptcy court dismisses the case, a creditor may restart collection activities against you. Bankruptcy laws that would stop collection attempts from agencies will no longer protect you at this point. Creditors can restart their attempts to collect the current amount owed on the debt and collect any interest on the debt that happened while you were in bankruptcy.

Filing for Chapter 13 lets you keep your property and repay creditors over time in a three or five-year repayment plan:

• If your current monthly income exceeds your state's median income, you must repay creditors in a five-year plan. Your income is your average income for the past six months before filing for bankruptcy.
• If your current monthly income is equal to or less than your state's median income, you can repay creditors in a three-year plan. This may be up to the bankruptcy court in your area.

You must begin making payments according to the proposed three- or five-year repayment plan within 30 days after filing for Chapter 13. The bankruptcy trustee (a person hired by the court to handle your bankruptcy) will hold the payments until the court either confirms or denies your plan.

If the court denies the plan, the trustee will return the money (minus administrative costs) to you. If the court confirms your plan, the trustee will distribute the funds to creditors following the program you created.

No, your trustee will handle paying your creditors. A Chapter 13 plan will typically require you to make regular payments monthly or bimonthly to the trustee or through a payroll deduction.

The trustee will distribute the money to pay for:

• Administrative fees
• Priority debts (a claim not secured by collateral but subject to repayment in full in Chapter 13)
• Secured debt (a debt secured by a property)
• Unsecured debt (a debt without the right to take specific property for an unpaid claim)

Your repayment plan must prioritize payments as follows:

• Pay administrative fees in full (with a statutory trustee fee ranging from 3% to 10% plus any attorney fees)
• Pay priority debts in full
• Secured debts that survive bankruptcy must stay current. You must pay overdue payments in full during the life of the plan.
• Pay other secured debts in full
• Pay unsecured creditors an amount equal to your non-exempt property. You must use all disposable income (current monthly income minus allowed expenses) to pay unsecured creditors over the plan's life.

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