CHAPTER 13 (Re-Organization)(Court Filing Fee $274.00)
A Chapter 13 is commenced by the filing of petition with the Bankruptcy Court. In most cases the filing of a petition will activate a Federal Court order called the automatic stay. The automatic stay prevents creditors from continuing any type of collection activity against the debtor and any co-debtors. This means that a creditor may no longer garnish wages, freeze bank accounts, foreclose on a home, repossess an automobile, send nasty letters, or make harrassing phone calls. Should a creditor violate the automatic stay the Court may impose penalties and fines.
WHY FILE A CHAPTER 13 INSTEAD OF A CHAPTER 7?
A Chapter 13 is completely voluntary. People choose to file a Chapter 13 for a variety of reasons. The most common reasons to file a Chapter 13 are:
Prevent a Foreclosure (A Chapter 13 stops a foreclosure and allows a person to bring their mortgage current over a period of three (3) to five (5) years)
Deal with Income Tax debt (A Chapter 13 allows a person to pay personal income taxes without ongoing penalties and interest. It also allows people to deal with Tax Liens or Tax Warrants)
Deal with Real Property Taxes (A Chapter 13 allows a person to pay real property taxes over an extended period of time and will stop a real property tax foreclosure)
A prior Chapter 7 within eight (8) years (A person is only eligible for a Chapter 7 discharge every eight (8) years. In a Chapter 13 a person can be eligibile for a discharge after only four (4) years)
Protects equity in property that would be lost in a Chapter 7
Cramdown a car loan (pay value of a car rather than amount owed)
Strip a Second Mortgage (In New York a second mortgage can be stripped from real property if no equity exists above and beyond the first mortgage)
The person does not meet the eligibility requirements of a Chapter 7.
HOW DOES A CHAPTER 13 WORK?
Once a Chapter 13 is filed a Trustee will be appointed to monitor the case and accept payments from the petitioner. The petitioner must file a plan of re-organization within fifteen (15) days of the petition. The first payment under the plan must be made within thirty (30) days of the filing. Between twenty (20) and forty (40) days after the filing the Trustee will conduct a 341 meeting. At this meeting the Trustee will ask the petitioner to provide proof of identity and Social Security Number. This meeting is designed to have a meaningful conversation about the case and resolve any issues that may arise. Approximately one (1) month after the 341 meeting the Bankruptcy Judge will conduct a confirmation hearing. At the confirmation hearing the Judge will decide if the plan meets the requirements of the Bankruptcy Code. The judge must find that the plan is proposed in good faith, that the petitioner is paying as much as he/she can afford, and that creditors are receiving as much as they would have in a hypothetical liquidation. Creditors must submit a proof of claim in order to be paid out of the plan payments. A proof of claim is similar to a declaration by the creditor of the amount owed. Plan payments will continue for a period of thirty-six (36) to sixty (60) months. Over the course of the plan the Trustee will send payments to creditors. Once the plan is completed the debtor must go through a Financial Management Course and submit an affidavit to the Court that they are current on post-petition child support. Any amounts that are not paid through the plan are then discharged (forgiven).