A case under Chapter 13 is often referred to as a "wage earner's plan", although you do not have to have wages or a salary for Chapter 13. You only need a regular source of income to file under Chapter 13. A husband and wife can file a joint case.
Why File Chapter 13
There are three main reasons you would file a case under Chapter 13.
- Mortgage Arrears - If some event has occurred which caused a loss of income and you fell behind in your mortgage payments, the missed payments can be put into a plan and paid off in monthly installments over 36 to 60 months. When you complete the plan, you will then be current on your mortgage. You can file almost up to the point when your house would be sold at a foreclosure auction. However, this type of plan will only work if the income is restored, through a new job, a better job or another income coming into the family, so you can make the plan payments and your regular monthly mortgage payments.
- Loss of Property if you file under Chapter 7 - Even though you file bankruptcy, there are certain things you are allowed to keep, which are called exemptions. However, although people can often keep everything they have, these exemptions are limited. See the exemptions page for a complete explanation. In a straight bankruptcy case under Chapter 7, non-exempt property would be sold. If you file under Chapter 13 and pay some or all of your debts back through a plan, you will often be allowed to keep your non-exempt property. A very common reason to file under Chapter 13 is where your exemption does not cover the value of the equity in your home. See the page on exemptions.
- Excess Income - If after analyzing your budget there is income left over after you account for your living expenses, this is called excess income. If your excess income reaches a certain level, the law requires you to pay back some portion of your debts. You would set up a plan where you would pay the excess income each month to your creditors for 36 or 60 months, who might receive anywhere from 10 cents to 100 cents on the dollar. The excess income is what is left over after all of your family's expenses are accounted for.
A Typical Chapter 13 Case
At the first meeting with a prospective client, we discuss with you your property, what portion of it might not be exempt, if any, your income and your expenses. If you qualify for and want to file under Chapter 7, then you can do so. If you decide to file under Chapter 13, we will then prepare your petition and Chapter 13 Plan and file them with the Court. Before we can file your case, you will have to complete a short course in Credit Counseling, by telephone or over the Internet, which takes about 90 minutes. We can arrange the course for you.
Typically, you will have to appear for examination before the Chapter 13 Trustee about four weeks after we file, and then about two months later, you will have to appear in Court to have your Chapter 13 Plan confirmed by the Bankruptcy Judge.
Your first plan payment must be made within 30 days after we file your case. The payments are made to the Chapter 13 Trustee. If you own a house you must make all regular monthly mortgage payments to the bank after your case is filed.
Once your case is confirmed, you will continue to make your plan payments until the plan is completed. Prior to the completion of your payments, you must take another course in Debtor Education, again by telephone or over the Internet. This one takes about two hours, and we can arrange this course for you as well.
After the plan is completed, you receive a discharge. If you were paying less than all of your debts, the remaining portion is discharged. If you were making up arrears, your mortgage will then be current.
After Your Case is Closed
Once you have received your discharge, the Court closes your case. However, things sometimes happen after the bankruptcy which you should let us know about. Sometimes a creditor will sell a package of debts to another company, and that package will contain your debt and you will hear from the new company. Do not worry. They are not permitted to collect from you, but you need to call us so we can stop any actions they might take.
See our page on Life After Bankruptcy for information on how you can establish credit once again.
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Allan R. Bloomfield
Attorney at Law
118-21 Queens Blvd. Suite 617
Forest Hills, NY 11375
Phone: 718-544-0500 | Email
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.