Chapter 13 Bankruptcy
What is Chapter 13 Bankruptcy?
A Chapter 13 Bankruptcy is a legal proceeding filed in Federal Court. It is called “Chapter 13 Bankruptcy” because Chapter 13 of the United States Bankruptcy Laws is where you’ll find the rules for creating a financial reorganization plan.
The person filing bankruptcy is called “the Debtor”. The Debtor’s creditors are called...you guessed it...Creditors. Besides debtors and creditors, every Chapter 13 Bankruptcy has two other participants, called the Bankruptcy Judge and the Chapter 13 Trustee. The Bankruptcy Judge is a Federal Judge who presides over the Chapter 13 case, signing orders and settling disputes. Most Chapter 13 Debtors never interact with the Bankruptcy Judge because they never go to the Bankruptcy Court. Most interaction is with the Chapter 13 Trustee, who is federally-appointed and oversees the administration of all Chapter 13 cases in his/her region. Currently, North and East Texas have five Chapter 13 Trustees, Tim Truman (Ft.Worth), Thomas Powers (Dallas), Janna Countryman (Plano), John Talton (Tyler) and Alice Whitten (Ft. Worth).
At the heart of a Chapter 13 bankruptcy is a payment plan lasting no more than 5 years. This repayment plan is proposed by the Debtor, approved by the Bankruptcy Judge, and funded by the Debtor’s monthly payments to the Chapter 13 Trustee. The Chapter 13 Trustee then distributes payments to the creditors listed in the Plan. All creditors receive notice when a Debtor files bankruptcy. If a creditor knows about the bankruptcy but doesn’t register with the Court, no money goes to that creditor and the debt owed to that creditor will be wiped out upon completion of the Chapter 13 bankruptcy.
What type of creditors get paid in a Chapter 13 bankruptcy? Every case is unique, but if the Debtor is behind on a mortgage, vehicle loan, taxes, or child support, the past-due amounts are usually included in the repayment plan. The majority of The Ford Law Firm’s fees are also included in the plan. The Chapter 13 Trustee takes a small set percentage from all cases to pay for operating expenses. Who else gets paid is usually determined by a complicated formula which measures the Debtor’s income against expenses. Some of the expenses are the Debtor’s actual expenses. Other expenses are measured by the IRS National and Local Standards. In some cases, ownership of non-exempt property may require the Debtor to pay a set amount to creditors.
What Happens in a Chapter 13 Bankruptcy?
- The Debtor starts the legal proceeding by filing a Chapter 13 Bankruptcy Petition, a proposed Repayment Plan, a list of creditors, and various documents outlining the Debtor’s assets, debts, income, expenses, and recent transactions.
- Within 2-3 days (or sooner) all creditors receive notice of the Chapter 13 Bankruptcy, and all creditor collection activity stops.
- Exactly 30 days after filing, the first plan payment is due.
- Within 30-45 days after filing, the Debtor attends a Creditor Meeting held at the office of the Chapter 13 Trustee. This Meeting is usually 30 minutes.
- Approximately 30-45 days after the Meeting of Creditors (3-4 months after filing), the Repayment Plan is approved by the Bankruptcy Judge.
- Approximately 4-6 months after the Repayment Plan is approved, the Chapter 13 Trustee prepares a final recommendation for changes to the plan, if necessary.
- No more than 60 months after the first plan payment, the Debtor completes the Repayment Plan and the bankruptcy ends.
What Can a Chapter 13 Bankruptcy Do For Me?
It Stops Creditor Harassment and Collection Attempts
- The United States Bankruptcy Laws give the Federal Bankruptcy Judge the power to stop creditor collection activities. This protection is automatic and takes effect instantly upon the filing of a Chapter 13 Bankruptcy.
- For the Debtor, this means the mortgage company, property tax collector, or home owners association can’t foreclose on the house, the auto lender can’t repossess the car, and the credit cards and collection agencies can’t continue to call day and night. The IRS or Attorney General can’t continue to garnish wages, attach liens, or charge penalties and interest on past-due amounts. Lawsuits against the Debtor are either prohibited or effectively dismissed.
It Gives the Debtor Flexibility and Control
- In a Chapter 13 Bankruptcy, the Debtor creates the Repayment Plan. If the Plan is approved by the Federal Court, all creditors are forced to agree to the terms.
- You can create a repayment plan that fits within your budget.
- If you prefer to repay all or some of your credit card balances without further interest and penalties, you can.
- You can pay past-due mortgage payments over 5 years, without further penalties or threat of foreclosure.
- If your auto loan is more than 2 ½ years old, you can reduce the balance due and pay only the current value of the vehicle, with a low interest rate and no threat of repossession.
- If commissions or bonuses make your income unpredictable, you can create a plan that adjusts accordingly.
It Offers More Time, Less Stress, and Greater Peace of Mind
- More time to pay in a multi-year repayment plan (36-60 months) with the flexibility to change with your income. What happens to your debt settlement or modification plan if you lose your job and temporarily can’t make the payments anymore? In a Chapter 13 bankruptcy, you can remain in the plan through temporary unemployment. Even with a long-term income reduction, you still have options for bankruptcy relief.
- Less daily stress, because federal law quickly and completely stops all creditor contact and harassment.
- Greater peace of mind from knowing you made a legitimate choice for the debt relief. A Chapter 13 Bankruptcy is operated under the Federal Bankruptcy Code through the Department of Justice. It is the only debt relief program operated by a public entity. Private debt relief businesses come and go. Some even file bankruptcy!. You can rest assured the Chapter 13 Trustee will be there tomorrow.
Can a Chapter 13 Help Me If...
- I need to stop a criminal proceeding? NO, a Chapter 13 Bankruptcy will not stop a criminal proceeding at any level.
- I want to challenge my child support payments?NO, a Chapter 13 Bankruptcy cannot change, reduce, or wipe out child support obligations.
- I’m having trouble with my landlord or I’m about to be evicted? NO, a Chapter 13 Bankruptcy does not provide a long-term solution to landlord/tenant issues unless the landlord cooperates.
- I have no income, no support, and no prospects for either? NO, a Chapter 13 Bankruptcy cannot help if you are completely destitute, with absolutely no income or support and no prospects for income or support. To qualify for a Chapter 13, you must have some income or other support.
Who Typically Files / Benefits from a Chapter 13 Bankruptcy
Nationwide Chapter 13 Filings
In 2007: ------ 321,359
In 2008: ------ 358,947
In 2009: ------ 402,462
Texas Chapter 13 Filings
In 2007: ------ 23,105
In 2008: ------ 21,784
In 2009: ------ 25,626
North & East Texas Bankruptcy Filings (Chapter 13/7)
In 2007: ------ 19,806
In 2008: ------ 20,259
In 2009: ------ 25,507
Who are these people...
- The family who could handle the bills when the husband and wife were both working. But, after the lay-offs they now face mortgage foreclosure or vehicle repossession. The collection agencies call all the time, day and night! They just needs some time to find work and reestablish their financial stability.
- The middle-aged couple with sizeable income and the debt that goes with it. Their 401ks were badly beaten up when the market collapsed. They are current with all creditors and have great credit scores, but it could be time to start making hard decisions to reallocate income to rebuild their retirement funds.
- The young couple with a credit card lifestyle before the interest rates suddenly doubled a few months ago. They wanted to repay the balances, but now they can barely afford the minimum payments. They need some relief from penalties and high interest rates.
- The individual who borrowed from his 401k to pay a large expense, but didn’t realize the tax implications. The IRS recently notified him of a five-figure “correction” to the amount due on his tax return, with additional penalties and interest.
Why Should I Retain The Ford Law Firm, PLLC
First, you should not file a Chapter 13 bankruptcy without a lawyer. Of course, this isn’t a legal requirement. However, Chapter 13s rarely survive when filed without a lawyer. Your local Chapter 13 Trustee’s Office can verify this. Without help, you can easily make a mistake that causes you to irrevocably lose your house or car. The Trustees, Court Clerks, and Judges cannot offer you legal advice or help.
Second, when comparing bankruptcy lawyers, you’ll find they all charge the same amount for a Chapter 13. And in most cases, the majority of the fees are included in the Repayment Plan. That makes it a little easier. Depending on a few variables, a Chapter 13 bankruptcy costs $3,000 - $3,500, plus the filing fees. This fixed fee amount was set by the local Bankruptcy Judges, to simplify the process. An attorney that charges more must get special approval from a Judge. If an attorney charges less than $3,000.00, please be advised you get what you pay for. That attorney probably lacks the experience you need, and may not even be aware of the fixed fee amount.
When price isn’t an issue, then experience matters most. Attorney Thomas Ford at The Ford Law Firm is well-versed in the procedures and practices of Chapter 13 bankruptcy in the Dallas, Ft. Worth, Plano, and Tyler regions. He has represented Debtors in 1,000+ bankruptcy cases. He knows a Chapter 13 bankruptcy is a legal minefield. The rules of the game are dependent on where you live, are not well-known, are difficult to find, and may change abruptly. For example, when you file a Chapter 13 bankruptcy what happens to your income tax refund? Does it matter how much it is? What if you’ve already received and spent it? What if you owe the IRS? The answers are different depending on where you live and work and may influence when and where you decide to file your case. You need a bankruptcy lawyer that knows this. You need a bankruptcy lawyer that knows the system and can use it to analyze your situation from Day One.
When you retain The Ford Law Firm, our job is to offer you competent advice and act upon your instructions with your best interest at heart. So, if you come to us to file a Chapter 13 Bankruptcy and Attorney Thomas Ford thinks you have a better option, he will tell you. At your final consultation, he’ll discuss various options and how they may or may not benefit you. If you file a Chapter 13 bankruptcy with him, you will know it was the best choice for you.