Bankruptcy Articles

Chapter 13 FAQ’s

Chapter 13 FAQ’s

1.  What is Chapter 13?

Chapter 13 is part of the Bankruptcy Code that is designed for structured for wages earners or small businesses. When a person files a bankruptcy case then all debt collection activities (wage attachments, mortgage foreclosures, lawsuits, telephone calls, letters, bank set offs or any kind of collection activity at all are stayed (stopped) by the filing of the case. As part of the Chapter 13 bankruptcy process, the debtor’s the attorney proposes a “plan” of repayment. The debtor must commence payments to the Chapter 13 Trustee within 30 days of your filing date. If the debtor fails to make the required payments then this may lead to the dismissal of the case.

The Chapter 13 plan in most circumstances proposes a payment plan that is less than 100% of your debts. Many debtors who earn less than the median income for their individual states, pay much less than 100% of their unsecured debts. In some of the rare cases, the debtors pay no percentage of their unsecured debts. The actual amount of the unsecured debts that you are required to pay is determined by a complicated formula. This formula is calculated by your attorney and he used the “means test.”

The means test has two primary purposes. The first major purpose of the means test is to determine the length of the plan. Second, the means test also determines how much money the debtor must pay to unsecured creditors. Secured and priority creditors payments are determined by other factors. After a confirmation hearing,  the court thenapproves your plan, and it becomes binding upon you and the creditors. After you complete payments under the plan, the court cancels the balance of your unsecured debt. Chapter 13 is most commonly used to stop a mortgage foreclosure. Chapter 13 most useful purpose is that it can save your home; even on the eve of a sheriff sale.

2. When should I file for bankruptcy?

In the State of New Jersey, it is possible, at present, to stop a sheriff’s sale before it takes place, and to cure your mortgage arrears in a Chapter 13 Plan. This does not mean you should wait for a sheriff’s sale. The longer you wait, the greater your chances are of missing a critical deadline. The longer you wait, the higher the fees and costs will be to cure the arrears. The longer you wait, the more mortgage payments you will miss. Consequently your bankruptcy plan payment will be higher. Therefore, the earlier you file, the more likely it will be that you will be able to successfully save your home.

You should consider filing a Chapter 13 if:

  1. Your house is being foreclosed upon.
  2. You have received a notice from your mortgage company that they intend foreclosure at any time in the future.
  3. You need some time to catch your breath, so that you can regain control of your life from your creditors.
  4. You are in severe financial difficulty and have tried, but cannot work other arrangements with your creditors.
  5. You have a home or a vehicle that you need to protect and are in danger of losing to a creditor.
  6. You have an honest desire to not “run away from” your creditors, but you are not in a financial position to pay all the debt, or all the debt and all the interest on that debt.

3. Who can file a Chapter 13?

The Bankruptcy Code provides that any individual with a regular income, i.e., a person with a stable income regular enough to allow him or her to make payments under a Chapter 13 plan, can file a Chapter 13 case. You do not need to have a job to file. You need only to have some source of regular income. You may not file a Chapter 13 if a creditor has requested relief from the automatic stay in a prior bankruptcy that you filed, and you voluntarily dismissed the case. This bar continues for 180 days from the date you dismissed your case. You may also be barred from filing for the 180-day period if your case was dismissed for willful failure to abide by orders of the court, or to appear before the court in proper prosecution of his case. See this section of the Bankruptcy Code for further explanation: 11.U.S.C. §109(e) and (g). Please note that the law as quoted on this link may not be updated. The limits are currently even higher (see below).

4. I do not have a job. Can I still file Chapter 13 case?

Generally, any individual with a regular income can file a Chapter 13. A regular income can come from social security, SSI, SSDI, private disability insurance, retirement income, government assistance (welfare), or any source of regular and dependable income. Some courts even allow assistance from relatives to be counted.

5. How can I pay for a lawyer if I am “bankrupt?”

There are a number of different ways as to how a debtor can pay his lawyer in a Chapter 13 case. The debtor should consider that he will not be paying a significant portion of his debts. Therefore, the debtor will be able to use his disposable income to pay for any counsel fees. Alternatively, some of the legal fees may be paid through the Chapter 13 plan. Thereafter, you will then have up to five years to pay! The legal fees that are paid through the plan will only marginally increase your plan payments.

6. Is there a limit on how much I can owe?

Yes, but you probably don’t exceed this limit. A debtor can’t file a Chapter 13 if he owes more than $269,250 in unsecured debts. Unsecured debts include credit cards, signature loans. Moreover, the debtor can’t have more than and $807,750 in secured (mortgages, new car loans, etc.) debt.

7. How do I start the Chapter 13 bankruptcy process?

To start a Chapter 13 bankruptcy then you must fill out a  lengthy package of forms. These forms are mostly the same forms as you would use in a Chapter 7 bankruptcy. You are then required to listing your income, property, expenses, and debts. You file these forms and paperwork with a nearby bankruptcy court. You must also file a workable payment plan proposing how you plan to handle your debts over the payment plan period.

You must also file your tax return for the previous year, proof that you’ve filed your tax returns for the last four years, and a certificate showing that you’ve completed credit counseling with an agency approved by the United States Trustee (go to www.usdoj.gov/ust, then click “Credit Counseling and Debtor Education” for a list of approved agencies).

Under a Chapter 13 plan, you make payments, usually monthly, to the Bankruptcy Trustee, an official appointed by the Bankruptcy Court to oversee your case. The Trustee in turn pays your creditors and collects a statutory commission based on the amounts paid out under your plan. You must make every payment, on time, in order to successfully complete your plan and get a discharge of your remaining debts.

8. What are the eligibility requirements to file for a Chapter 13?

Chapter 13 bankruptcy isn’t for everyone. Because Chapter 13 requires you to use your income to repay some or all of your debt, you’ll have to prove to the court that you can afford to meet your payment obligations. If your income is irregular or too low, the court might not allow you to file for Chapter 13.

If your total debt burden is too high, then you are also ineligible. Your secured debts cannot exceed $1,010,650, and your unsecured debts cannot be more than $336,900. A “secured debt” is one that gives a creditor the right to take a specific item of property (such as your house or car) if you don’t pay the debt. An “unsecured debt” (such as a credit card or medical bill) doesn’t give the creditor this right.

9. Can I transfer ownership of my home, car, boat, collectibles, tools, etc. to someone else to keep these items out of bankruptcy?

No. Such transfers will almost invariably violate New Jersey’s fraudulent transfer statute and 11 U.S.C. §548 of the Bankruptcy Code. The Chapter 13 Trustee has the power to set these transfers aside. The Trustee can also ask for the case to be dismissed for a “bad faith filing.” Moreover, federal law could be invoked to initiate criminal proceedings based on bankruptcy crimes.

10. If I file for a Chapter 13, will I have to surrender my vehicle or my home?

No. If you file for Chapter 13 bankruptcy, then you don’t have to hand over any of your property. Instead, instead you have to repay your debts out of your income. In exchange for getting to keep your property, your plan will have to pay your creditors at least the value of your nonexempt property. In a Chapter 7 bankruptcy, you must surrender your nonexempt property to the Trustee, who can sell it and distribute the proceeds to your creditors.

11. What are some of the major reasons to use Chapter 13 Bankruptcy instead of Chapter 7 Bankruptcy?

Sometimes it makes sense to file for Chapter 13 bankruptcy instead of Chapter 7 bankruptcy. Many debtors choose not to file for Chapter 13 bankruptcy because it requires the repayment of at least a portion of their debts. Meanwhile, in a Chapter 7 bankruptcy, this proceeding wipes out many debts entirely.

In some situations, however, Chapter 13 bankruptcy is the better bankruptcy option. Not only that, but certain debtors don’t get to choose: Not everyone is eligible for Chapter 7 bankruptcy, so Chapter 13 will by the only option available to some filers.

Here are some good reasons to file for Chapter 13:

a. You cannot file for Chapter 7. You won’t be allowed to file for Chapter 7 if you cannot meet some new requirements imposed by the 2005 revisions to the bankruptcy law. Under these new rules, you cannot file for Chapter 7 if both of the following are true:

b. Your current monthly income over the six months prior to your filing date is more than the median income for a household of your size in your state (go to the website of the United States Trustee, www.usdoj.gov/ust, and click “Means Testing Information” to see the median figures for your state).

c. Your disposable income, after subtracting certain expenses and monthly payments for debts you would have to repay in Chapter 13, exceeds certain limits set by law. These calculations are commonly referred to as the “means test” ‑‑ if you have the means to repay a certain amount of your debt through a Chapter 13 repayment plan, you flunk the test and are ineligible for Chapter 7 bankruptcy. (For more information, including a link to an online calculator you can use to see whether you pass the means test, see The Means Test: Is Your Income Low Enough for Chapter 7 Bankruptcy?)

The means test can get fairly complex ‑‑ and, to make matter worse, Congress has its own definitions of “disposable income,” “current monthly income,” “expenses,” and other important terms, which sometimes operate to make your income seem higher than it actually is.

d. If you have received a Chapter 7 bankruptcy discharge within the last eight years, or a Chapter 13 discharge within the last six years, you may not file for Chapter 7 bankruptcy.

e. You are behind on your mortgage or car loan, and want to make up the missed payments over time and reinstate the original agreement. You cannot do this in Chapter 7 bankruptcy. You can make up missed payments only in Chapter 13 bankruptcy.

f. You have a tax obligation, student loan, or other debt that cannot be discharged in Chapter 7. You can include these debts in your Chapter 13 plan and pay them off over time.

g. You have a sincere desire to repay your debts, but you need the protection of the bankruptcy court to do so. This might be the case if creditors are coming after you, or if you simply require the formal structure and deadlines the Chapter 13 process provides in order to follow through on your good intentions.

h. You have nonexempt property that you want to keep. When you file for Chapter 7 bankruptcy, you get to keep only exempt property ‑‑ property that is protected from creditors under state or federal law. You have to give your nonexempt property to the bankruptcy Trustee, who can sell it and distribute the proceeds to your creditors.

In Chapter 13, you don’t have to give up any property. Instead, you repay your debts out of your income. So, if you have nonexempt property that you can’t bear to part with, Chapter 13 might be the better choice.

i. You have a co-debtor on a personal debt. If you file for Chapter 7 bankruptcy, then your co-debtor will still be on the hook. Thereafter, your creditor will undoubtedly go after the co-debtor for payment. If you file for Chapter 13 bankruptcy, then the creditor will leave your co-debtor alone, as long as you keep up with your bankruptcy plan payments.

12. What are the advantages of filing for a Chapter 13 as compared to a Chapter 7?

A Chapter 13 bankruptcy, or wage earner plan, will be most helpful to you if you are behind in payments on a house, car or other property that is largely nonexempt and is subject to foreclosure or repossession. It can also be used to pay past due taxes owed to the IRS or the State of New Jersey, without continuing accrual of penalties. Additionally, it is available to Individuals who are ineligible to file under Chapter 7 because they do not pass the means test and have some disposable income to pay at least part of their unsecured debt.

A Chapter 13 bankruptcy is a more complicated and longer process than a Chapter 7 bankruptcy. While you may be able to keep more of your assets, you will have to live on a court‑supervised budget for the next several years.

In order to qualify for Chapter 13 relief, you must have “regular income” from a salary, commission, rents, pension, alimony, child support, Social Security, unemployment or worker’s compensation or public benefits. You must also owe no more than $307,765 to unsecured creditors and $922,975 to secured creditors. Unlike a case under Chapter 7, a Chapter 13 case can be filed at any time. However, a Chapter 13 discharge will be denied if you have received a Chapter 7 discharge within four years before your Chapter 13 case is completed, or if you received a prior Chapter 13 discharge within two years of the completion of your present case.

In a Chapter 13 proceeding, you must propose a payment plan for a period of three to five years under which you agree to make monthly payments to a Chapter 13 Trustee, beginning with the month after your case is filed. These payments will be held by the Trustee and disbursed to your creditors in accordance with the terms of your bankruptcy court‑approved plan. The amount you will be required to pay and the length of time over which your payments will need to be made will be determined by your means test results. If you have disposable income under the means test, but you will need to pay the amount of that income for a period of 60 months.

If you do not have any disposable income under the means test, then you may limit your plan payments to the amount which your actual budget shows you can afford to pay and limit the length of your plan to 36 months. Under any circumstances, the payments you will be required to make must be sufficient to satisfy all past due payments owed to secured creditors whose collateral you wish to keep (i.e., mortgage arrears on home or other real property, car loan payments, etc.), past due payments to landlords or other lease agreements you intend to assume, priority obligations due for past due support or tax obligations and administrative costs and expenses for administering your case. The plan can outline reasons why different types of claims should be repaid differently.

13. Is credit counseling a requirement before I can file for bankruptcy?

Yes! Credit counseling is one of the major changes of the BAPCPA, or of the new bankruptcy code. Basically, the new bankruptcy laws want to create as many hurdles as possible for a debtor to file for bankruptcy. In my opinion credit counseling is a major waste of time and of the debtor’s hard earned money. The new Bankruptcy Code (BAPCPA) 11 U.S.C 109(h) requires credit counseling prior to filing a bankruptcy case. If the debtor fails to obtain credit counseling then his case will be dismissed.

If your bankruptcy is dismissed, then you will lose your filing fees. A debtor can obtain credit counseling on the internet or by telephone. For a list of approved credit counselors, check the website of the US Trustee Program. Once you complete the credit counseling, then the provider will send you a certificate of credit counseling. The bankruptcy court is very strict about the credit counseling requirement. Most of my clients advise me that the credit counseling only takes them about 20 minutes to go through the process.

A list of the approved consumer credit counseling services is available through the Office of the U.S. Trustee. The course usually lasts about twenty minutes if that, and it cost about $50. Upon completion of the course, then the debtor will be issued a credit counseling certificate.

14. Why is my Chapter 13 case number important?

Your case number is a number uniquely and specifically assigned to your case. It is your identification number and is very important. Your Chapter 13 case number is very important.  This case number is your identification number with both the Court and the Trustee’s office, and should be kept handy. Always include it Your case number must appear neatly on any and all payments or correspondence you send to the Trustee’s office. Your name and address should also be included.

15. What is electronic filing and how can that help me?

Electronic filing is one of the most significant improvements to the US Bankruptcy system in the last decade. Electronic filing allows the filing and processing of bankruptcy petitions, as well as subsequent filings of court documents almost instantaneously through the internet. Basically, a debtor can file his bankruptcy just like he can file his taxes electronically. The electronic filing system is known as ECF/ECM.

16. How does the Chapter 13 process work?

a. Credit Counseling

Before you can file for bankruptcy, you must receive credit counseling from an agency approved by the United States Trustee’s office. (For a list of approved agencies, go to the Trustee’s website at www.usdoj.gov/ust and click “Credit Counseling and Debtor Education.”) These agencies are allowed to charge a fee for their services, but they must provide counseling for free or at reduced rates if you cannot afford to pay.

b. The Chapter 13 Repayment Plan

The most important part of your Chapter 13 paperwork will be a repayment plan. Your repayment plan will describe in detail how (and how much) you will pay each of your debts.

c. How Much You Must Pay

Your Chapter 13 plan must pay certain debts in full. These debts are called “priority debts,” because they’re considered sufficiently important to jump to the head of the bankruptcy repayment line. Priority debts include child support and alimony, wages you owe to employees, and certain tax obligations.

In addition, your plan must include your regular payments on secured debts, such as a car loan or mortgage, as well as repayment of any arrears on the debts (the amount by which you’ve fallen behind in your payments).

The plan must show that any disposable income you have left after making these required payments will go toward repaying your unsecured debts, such as credit card or medical bills. You don’t have to repay these debts in full (or at all, in some cases). You just have to show that you are putting any remaining income toward their repayment.

d. How Long Your Repayment Plan Will Last

The length of your repayment plan depends on how much you earn and how much you owe. If your average monthly income over the six months prior to the date you filed for bankruptcy is more than the median income for your state, you’ll have to propose a five‑year plan. If your income is lower than the median, you may propose a three‑year plan. (To get the median income figures for your state, go to the United States Trustee’s website, www.usdoj.gov/ust, and click “Means Testing Information.”) No matter how much you earn, your plan will end if you repay all of your debts in full, even if you have not yet reached the three‑ or five‑year mark.

17. How much money will I be required to pay under a Chapter 13 plan?

Some creditors are entitled to receive 100% of what you owe them, while others may receive a much smaller percentage (or nothing at all). Typically, Chapter 13 bankruptcy plans must provide that:

  1. Administrative claims will be paid 100%. These include:
    1. your filing fee ($274)
    2. the Trustee’s commission (3% to 10% of each monthly payment), and attorney’s fees, if you hire an attorney for help with your Chapter 13 bankruptcy.
  2. Priority debts will be paid 100%. These include:
    1. back alimony and child support
    2. most tax debts (including state and federal income taxes) wages, salaries, or commissions you owe to employees, and contributions you owe to an employee benefit fund.
    3. Mortgage defaults will be paid 100% if you want to keep your house.
    4. Other secured debt defaults will be paid 100% if you want to keep the property. Missed car payments fall into this category.
    5. Unsecured debts will be paid anywhere from 0% to 100% of what you owe.

18. What will be the length of my payment plan?

The length of your payment plan depends on how much you earn. If your “current monthly income” (your average income over the six months prior to filing) exceeds the median monthly income for a household of your size in your state, then your plan must last five years. If your income is less than the median, then you can propose a three‑year plan, even if your unsecured creditors cannot be fully repaid during that time. To find the median income figures for your state, go to the United States Trustee’s website, www.usdoj.gov/ust, and click “Means Testing Information.”

Your “current” monthly income might be out of date. Because your current monthly income, as calculated above, is an average, it may well be more than your actual monthly income at the time you file. For instance, if you were laid off unexpectedly three months before filing, your monthly income when you file may be quite low ‑‑ as compared to your average income over the last six months, which will have to include three months of your salary.

19. When is the first plan payment due, who gets paid, and how are the payments made?

The first payment is due 30 days after the plan is filed. The payment is made by cashiers check or money order payable to the Chapter 13 Trustee. The debtor’s name and case number must appear on the face of the check or money order. The payments are sent to a lock box in Memphis, Tennessee as instructed in a letter sent to the debtor by the Chapter 13 Trustee at the beginning of the case. The Trustee will send a coupon book to be used with each payment.

Once your case is filed, you begin making payments to your Chapter 13 Trustee. Thereafter, if your plan is confirmed, you continue to make payments to the Trustee until your plan is paid in full. Individuals who file Chapter 13 cases are commonly referred to as “debtors.” A Chapter 13 plan cannot exceed 60 months from the date it is filed.

Generally, unless otherwise provided for by the plan your payments are due 30 days after you filing date. They are generally payable every month at that time. All payments are payable by money order or certified funds only. No personal checks are ever accepted by the Chapter 13 trustee. The debtor is responsible for keeping track of your payments. It is suggested that you keep a careful record of your payments, in case of a dispute.

20. What are my responsibilities after I file for a Chapter 13?

The following are among the most important obligations that you have in a Chapter 13 case:

a. Be truthful to all authorities involved, including your lawyer. If you lie in a bankruptcy proceeding then it is a federal crime. A debtor can accomplish much better results if he truthfully discloses unfavorable facts to the court instead of lying about them.

b. A debtor should pay the plan payments on a faithful basis. I will tell you the amount of your plan payments. If you miss two consecutive payments, then your case could be dismissed. You may wish to request a wage attachment. If you do, then the payments will come directly from your paycheck, and you will not have to worry about payments, as long as your employer is making them. Of course, if your employer stops making payments for any reason, then it is your responsibility to continue them. By the way, your first plan payment will be due the first full month after you file your bankruptcy. Retain your money order receipts as proof of payment.

c. Attend court when you are directed to do so. Your court appearances will be minimal. Most debtors only have to appear one time, at what is called a “section 341”. At that meeting, the creditors are allowed to attend and ask questions, although it is rare that they actually do.

d. A debtor must pay his mortgage! You may have been told of this obligation, but it cannot be stressed enough. Current monthly mortgage payments must be maintained. Payments must be made in the month after you file your case. Pay the regular monthly amount to your mortgage company unless you are instructed to do otherwise. If your payments are refused by your mortgage company, then you must report this fact to your lawyer at once. You are never excused from making current monthly mortgage payments. Your failure to comply with this requirement will eventually cost you your home. You should be sure to retain your canceled checks as proof of payment. It is usually a good idea to enclose a copy of your bankruptcy petition with your first check to your mortgage company as proof of the filing of this case. They will need to know that you are in a Chapter 13 case in order to begin accepting payments again.

If you do not pay your mortgage payments, and if the mortgage company gets relief from the stay, then it is s allowed to proceed with or commence a foreclosure. A debtor is not allowed to just dismiss his case and start over. If you dismiss your case after a motion for stay relief is filed, then you must wait 180 days to refile. If the Trustee dismisses your case, then the 180-day period is not applicable, however if you file a case within a year after the dismissal the automatic stay will expire after 30 days unless the court extends it for good cause shown. There is no way to know exactly when a motion for stay relief will be filed by the mortgage company. It is best to stay current.

e. Obey all of the orders of the Bankruptcy Court.

f. Pay your car payment! If you fail to keep this current, then your car can be repossessed after relief from the stay is obtained. Additionally, you must also keep your car fully insured.

21. Will I be required to make a court appearance during my Chapter 13 case?

There will be several hearings at which you must appear during the course of your case. You must appear before the Trustee (or his attorney) at a 341(a) hearing, also known as a “meeting of creditors.”  If you have an attorney, contact him or her to determine whether or not you have to appear at the Confirmation Hearing. Additionally, you may be required to appear in court from time to time throughout the life of your case for motions or adversary proceedings. You should contact your attorney immediately if you receive documents that have a hearing date on them.

22. What exactly is the “Meeting of Creditors” and what will happen there?

The Meeting of Creditors sounds very scary. However, in most cases the hearing is very routine. It should not be dreaded by the ordinary debtor. In the majority of the cases, no creditors actually appear at the hearing. If they do appear, then they are very limited in the scope of the questioning that they are permitted to pursue. There is usually a long list of debtors on the Meeting of the Creditors calender. Therefore, the Trustee will no permit a creditor to turn any questioning into a prolonged affair. Moreover, an experienced bankruptcy lawyer should be easily able to adequately deal with any creditor who may appear.

It must be emphasized that the Meeting of the Creditors is not a “free for all” where creditors get to yell and scream at the debtor. If any of the creditors should appear, then they are limited to only pursuing a limited inquiry as to relevant and material issues. Moreover, no creditor will ask you to pay any your debts. Nonetheless, the Trustee will ask you questions about the reasons for filing, and he will ask you to verify any essential facts. It is therefore important that you come prepared.

Generally, these are the items that you will need to bring to a Meeting of the Creditors;

a. A copy of your last tax return must be provided to the Trustee at least 7 days prior to the Meeting of the Creditors.

b. Proof of your ID. The Bankruptcy Court accepts passports, driver’s licenses, and county ID’s. Moreover, you will be required to produce your social security card. Please note that your Blockbuster card is not sufficient ID in the Bankruptcy Court.

c. Proof of your income, and this includes copies of you paychecks, child support payments, disability payments, or social security payments.

d. Proof of income from any rent, leases, or from any other agreements that pay you money.

e. Proof of any real property fair market value. If you own a home, then you will be required to produce an appraisal to the Trustee.

f. Proof of any outstanding balances on your mortgage(s).

g. Copies of any lawsuit information that you may have. The Trustee is particular keen to ascertain if you have any pending lawsuits that can pay you monetary damages. If the lawsuit is substantial, then the Trustee will take it over, and he will then use the proceeds to pay off any of your creditors.

23. What is the “means test?”

Under the new bankruptcy laws that went into effect in October 2005, all Chapter 13 debtors are required to file a Means Test Calculation along with their Bankruptcy Petition, Schedules and Statements, and other required documents. Generally, a means test is performed by looking at all of the debtor’s income for the 6 months preceding the date of filing, determining the average monthly income, and multiplying that figure by twelve. The resulting figure is then compared to the median income in the state of New Jersey for a household of similar size. If the debtor is over the median income, then further tests are conducted to determine how much, if any, disposable income the debtor has at the end of month. Often the disposable income must be dedicated over the life of the Bankruptcy plan to paying unsecured creditors. This analysis is completed by your attorney.

24. What is the “disposable income test” in a Chapter 13 case?

Your payment plan must commit to paying any leftover disposable income (your income less certain allowed expenses and payments on secured loans, such as a mortgage or car loan) toward your unsecured debts, such as credit card debts and medical bills

In some cases the debtor must commit all of his net take‑home pay to the plan for the life of the plan. In practice, this means that the plan payment plus reasonable and necessary living expenses must account for all the net take‑home pay. If there is any net take‑home pay leftover, the extra income is dedicated to the unsecured creditors. If the unsecured creditors are paid in full, then the “disposable income test” does not come into play in most cases. Your disposable income should be calculated by your attorney prior to filing your plan.

25. What is the “best interest of creditors test” in a Chapter 13 case?

This test requires the debtor to make sure that under the Chapter 13 Plan, the unsecured creditors receive at least as much under Chapter 13 as they would receive if the case were handled under Chapter 7. This involves completing a liquidation analysis on paper in order to determine what the unsecured creditors would receive under Chapter 7. The Chapter 13 plan must provide at least that much to the unsecured creditors. This analysis should be completed by your attorney.

26. Can I obtain new credit while I am making payments on my Chapter 13 plan?

You must obtain permission from the Chapter 13 Trustee or the Court to incur new debt while you are in a Chapter 13 bankruptcy. It is difficult to get the Trustee or the Court to approve new credit until the plan is confirmed, which normally occurs two to three months after the case is filed. Even after confirmation, the procedure requesting the Trustee or court approval is quite cumbersome: the Trustee has a form that must be filled out and a current income and living expense analysis must be provided along with a copy of the financing arrangement for which approval is being sought. This also assumes that a lender has been found who is willing to loan money to an individual in a Chapter 13 bankruptcy.

27. Can I incur any new debt during the Chapter 13 bankruptcy process?

You should avoid incurring new debt after the filing of the petition. If you must incur a debt after the filing of the petition, then you are responsible for repayment and that debt amount cannot, in most instances, be included in your Chapter 13 plan.

28. What is the role of the Chapter 13 Trustee?

The Trustee is a neutral third party who oversees the administration of your case. Your Trustee is responsible for receiving your payments, dividing up the money based on the provisions of your Chapter 13 Plan, and sending payments to your creditors on your behalf. The Trustee is responsible for the administration of your case throughout its 36 to 60‑month life. The Trustee is not your attorney, nor is he the creditor’s attorney. Therefore, he cannot give you legal advice.

29. What are the functions of the Trustee?

The primary functions of the Chapter 13 Trustee are:

a. To receive payments from you and make sure that they are posted to your case in a timely manner;

b. To make payments to your creditors on your behalf; and

c.  To give information regarding Chapter 13 cases to debtors, creditors, and attorneys.

The Trustee is not lending you any money.  He is simply receiving your payments and distributing the money to your creditors in accordance with the Bankruptcy Code and your Chapter 13 Plan.

30. Who pays the Trustee and his staff, and how much is he paid?

The Trustee’s costs for administering your case are paid from the funds you pay into your Chapter 13 plan. The United States Bankruptcy Code states that the Chapter 13 Trustee is to charge an expense and compensation sum to all cases under his or her administration, and sets the maximum charge at 10 percent of the amounts disbursed in your case. The percentage fee may vary during the life of your case, but the Trustee’s percentage is always less than 10 percent.

31. How does the Trustee pay your creditors?

Creditors are paid based on upon their classification.

Generally, creditors are classified and paid in the following order:

a. Attorney fees;

b. Secured creditors (mortgage arrears or auto loans);

c. Priority unsecured creditors (property taxes or income taxes due to the IRS or state); and finally,

d. General unsecured creditors (credit cards, etc.).

32. Can I sell a vehicle which secures a debt being paid by my Chapter 13 plan?

The short answer is “yes,” but it may not be practical to do so. If you do sell a vehicle which is being paid by the plan, then the debt that is secured by the vehicle will no longer have to be paid in the plan. However, the payments will still go to the secured creditor unless you modify the plan. Thereafter, you may ask that your plan be modified to remove the car payment, which may allow the plan to be reduced in length or the amount of payments. Even if you modify your plan, you will still be required to contribute your disposable income to the plan during the first 36 months.

In my experience it is usually not practical to sell a vehicle being paid for by the plan. It is rare that a vehicle is worth more than the balance owed on the loan. In order to sell the vehicle, the full balance owed to the creditor must be paid‑‑not the reduced amount that must be paid to the creditor under the plan. The full balance is greater than a buyer would be willing to pay.

If you decide that you no longer want the vehicle, it is generally possible to give it back to the creditor even if you cannot find a buyer. In that case the plan can usually be modified to remove payment of the vehicle from the plan and possibly reduce the length of the plan or the amount of the payments.

33. What is the “automatic stay” and why should I be concerned about it? Can I recover money damages if the stay is violated?

Under most circumstances, the moment your petition is filed, you are immediately protected by the “automatic stay,” an injunction that prohibits your creditors from taking legal action against you – including the garnishment of wages, foreclosure or repossession of property, or eviction-without the permission of the court. The automatic stay does not, however, apply to criminal proceedings against you or to actions enforcing domestic support obligations. In addition, the automatic stay does not apply to prevent an eviction if a judgment of possession has been entered before the case was filed, except that the stay may apply for 30 days or longer if certain conditions are met, including the immediate posting with the clerk of the court of any rent that will become due during the 30 days after your case is filed.

The automatic stay will go into effect at the time your case is filed if you have not had more than one bankruptcy case pending and dismissed within the previous 12 months. If you have had a bankruptcy case pending within the last 12 months that was dismissed, the automatic stay will terminate 30 days after your case is filed unless the court allows the stay to be extended. If you have had more than one case pending and dismissed within the last 12 months, there is no automatic stay or protection from your creditors unless the court allows a stay to be put into place. In order for the court to extend or impose the stay, you will need to make an application for this relief within 30 days after your case is filed.

34. Why should I be so concerned about the automatic stay?

You should be concerned about the automatic stay for two main reasons:

First, the automatic stay protects you from your relentless creditors who are calling you twenty times a day, who are trying to seize your bank accounts, who are trying to repossess your care, etc. The automatic stay applies to almost all creditors and stays all activities that are intended enforce the repayment of a debt. The automatic stay prevents anyone, or any entity, from pursuing legal recourse against a debtor. However, the automatic stay does not apply to the collection of criminal fines or restitution. For instance, the automatic stay does not protect a debtor if he issues a bad check. The issuance of a bad check is a criminal violation, and this type of criminal activity will not be protected by the automatic stay.

Moreover, the automatic stay not protect you from enforcement actions to compel you to pay your child support obligations! Additionally, it does not get you out of paying alimony. It does not stop you for being arrested for not paying a criminal fine.  It does not get you out of traffic tickets. The Bankruptcy Court issues the automatic stay as a matter of course once the debtor files his case. The debtor does not have to move for it or apply to the Bankruptcy Court to obtain one.

Second, any violators of the automatic stay can become liable to you for monetary damages. These actions, depending on the severity, can award a debtor damages for their losses, pain and suffering (if it can be related to a medical condition) actual specific economic losses as well as attorney’s fees and costs of the lawsuit (if any; in most such actions there are no additional court fees). Many debtors are surprised that they can recover money from their bankruptcy case, but the courts have upheld the doctrine that the debtor will be protected from financial loss if it can be proven. Some cases have held that wherein a debtor incurs a financial loss, then that loss can be enhanced by intentional infliction of emotional distress where it enhances an actual pecuniary loss.

The protection of the automatic stay also continues once the debtor receives a discharge in bankruptcy, as to the debts that were part of the case. However, if the debtor incurs new debts after the bankruptcy filing, then the automatic stay does not apply.

32. Who notifies the creditors that I have filed for a Chapter 13 bankruptcy?

The Bankruptcy Court notifies the creditors. It usually takes about two to three weeks after the filing. Some creditors may not recognize and process the bankruptcy notices due to their size. Thereafter, the credit card companies and the other creditors may still continue to call you and send out bills after you have filed. Many creditors simply use billing services. Many creditors use these billing services instead of trying to collect their own debts. Many billing services are simply incompetent.

33. How can I stop creditors harassing you or your family?

Once a debtor files for a Chapter 13 then all of the collections actions by any and all creditors is immediately stayed. Stayed is simply a fancy term that means any debt collection activities must. The automatic stay is tantamount to “nuking” your creditors. The stay applies to all lawsuits, phone calls, demand letters, recorded phone messages, repossessions, and to foreclosures cases. Please note that it is the Bankruptcy Court who notifies all of your creditor once your case is filed. The Bankruptcy Court sends out generated court notices to all of your creditors that are listed on your bankruptcy schedules. Once your creditors receive this notice, then they must immediately stop trying to collect their debts from you.

It is important to emphasize that it may take some time before all of your creditors will become aware that you have filed for bankruptcy. Many creditors have very large operations, and you are basically just a file or a number to them. If any creditors call you after you file, then you should refer that creditor to your bankruptcy lawyer, and provide that creditor with your case number. The mere fact that you have filed for bankruptcy does not automatically mean that all your creditors will know immediately of your filing. It may take several weeks for them to learn of the filing from the Bankruptcy Court. Nonetheless, if a particular creditor is still pesky, then let me know and I will contact them. Thereafter, any harassment should immediately cease. If it does not, you may have the right to bring legal action against them. Moreover, you may be able to recover sanctions in the Bankruptcy Court.

34. Can a Chapter 13 save my home from foreclosure?

In most cases, YES! One of the main purposes of a Chapter 13 is to enable a homeowner to cure the default that is owed to a mortgage company. Chapter 13 is an excellent way for a debtor to reinstate his mortgage to its pre‑default status. This is done through payment of a Chapter 13 “plan.” Under this plan, the debtor makes payments to a Trustee usually over a 36 to 60 month period. The plan payments must be large enough to enable the debtor to reinstate the loan to current status. During this time period, the mortgage company cannot sell your home or in any way continue with the foreclosure case. If a foreclosure action is not commenced when you file, then the mortgage company cannot begin one after you file.

If the debtor can’t afford his mortgage payments unfortunately, a Chapter 13 can’t eliminate, extend or reduce them. One of the primary requirements of the Bankruptcy Code relating to Chapter 13 plans is the so‑called “anti-modification clause.” This states that a Chapter 13 debtor must provide for full payment to a mortgage company which maintains a lien on the residence of the debtor where that lien is the only security held by the mortgagee (e.g. the mortgagee’s lien is not on the house and personal ‑ not real estate ‑ property). Therefore, your mortgage payment cannot be changed, stayed or eliminated. The mortgage arrears only may be paid over the life of the plan. This is a maximum of 60 months.

35. Can a chapter 13 filing allow me to save my repossessed car?

In many cases the debtor is able to reacquire his car. However, if the car has been sold, or if you simply wait too long after repossession, then it may be difficult or impossible to recover the vehicle. Most vehicle loan companies will return a car voluntarily after you file a Chapter 13. However, the car must not have been sold at an auction. Additionally, the debtor must also provide proof of insurance. This insurance usually must include collision and name the finance company as a loss payee, meaning the policy must specifically mention the loan company as the person/company which gets paid first in the event of a loss.

36. Do I have to pay for my homeowner’s insurance payments once I file for a Chapter 13 bankruptcy?

Absolutely! If you don’t pay for your homeowner’s insurance, then the Chapter 13 Trustee who will move to dismiss your case for refusing to protect the rights of your mortgage company. A destroyed home makes lousy collateral for a mortgage, puts the debtor out on the street, and it generally has a negative impact on future Chapter 13 plan payments. Therefore, you must maintain your homeowner’s insurance policy once you are under bankruptcy protection.

37. Can my creditors contact me after I file my Chapter 13 case?

No. If your creditors contact you after filing then they will be violating the automatic stay provisions of the U.S. bankruptcy code. The creditors listed in your petition are not allowed to contact or harass you in any way once you’ve filed your Chapter 13 petition.

If you are contacted by creditors who were listed in your Chapter 13 petition after you have filed the case, you should advise them of the filing, give them your case number and the name and telephone number of your attorney. If the creditor continues harassment, they could be held in contempt of court.

If you should you receive notices or bills in the mail from a creditor who was listed in your Chapter 13 petition, simply write you case number and your attorney’s name and telephone number on the bill and return it to the creditor. If you receive other notices or bills from that creditor, then notify your attorney immediately so that he or she may deal with the creditor in a timely manner.

38. What if I owe money to utilities, will they shut off my power once I file for bankruptcy?

The Bankruptcy Code prohibits your utilities from discriminating against you if you file for a bankruptcy. Thus, First Energy or PSEG, your water, telephone, or any utility company is specifically barred from discriminating against you merely because you have filed a bankruptcy. These utility companies can’t shut off your power, water or phone service or refuse you any utility service just because you have filed. Nonetheless, you should be aware that your local utility company may request a deposit from you for any continued service.

39. Where do I send my mortgage payment(s) during the Chapter 13 case?

Mortgage payments and taxes must be paid directly to your own bank or mortgage company. Unless a special arrangement has been made, all post‑petition mortgage payments and taxes (payments due after the date that the case is filed) are paid directly by you to the mortgage company or taxing authority.

Usually mortgage arrears and past‑due taxes are paid through the Trustee’s office in accordance with the Chapter 13 Plan. At the same time, you are required to make all ongoing, post‑petition mortgage and tax payments directly to the mortgage company or taxing authority. Because you have been making your current mortgage and tax payments, and your mortgage arrears and past‑due taxes have been paid through the Trustee’s office, you should be completely up‑to‑date upon completion of your plan.

40. What are the chances of my bankruptcy “not being accepted?”

Many of my many clients are under the impression that “their bankruptcy has to be accepted.” This is a misconception. Once the bankruptcy case is filed, then it is “accepted” by the court. Thereafter, the debtor obtains relief from all debt collection activities, including, but in no way limited to:

a. The immediate stay of any litigation, excepting criminal and child support (also certain family matters);

b. Harassing phone calls;

c. Requests for payment;

d. Repossessions;

e. Electrical, water, telephone or other utilities being shut off.

41. Do my creditors have to accept my Chapter 13 plan?

While it is true that your plan must be confirmed by the court, your creditors do not have to accept the plan if:

a. It is your best effort;

b. It provides for a payment to unsecured creditors in an amount at least as much as they would receive if you had filed a Chapter 7 bankruptcy;

c. It provides that secured creditors will retain their liens; and

d. It otherwise complies with the minimum requirements for a Chapter 13 plan under the law;

42. Can the Trustee or a creditor object to confirmation of a Chapter 13 Plan?

Yes. It is the Trustee’s responsibility to object to Chapter 13 Plans that are deficient. A creditor may also object, but generally most objections will come from the Chapter 13 Trustee. Most objections are worked out or resolved prior to the confirmation hearing but occasionally the court has to take evidence and rule.

43. What will be the consequence if I am unable to make my Chapter 13 payment(s)?

You are required to make a payment to the Trustee each and every month without fail, unless otherwise ordered by the Court.

If you are unable to make your monthly payments, contact your attorney immediately to discuss your options with him or her.

The Trustee’s job is to make sure that you are making payments each month and, in turn, that your creditors are paid each month.  If you cannot make your payments, then the Trustee may file an action in court to dismiss your case for nonpayment (a Motion to Dismiss or an Affidavit of Non‑Payment). This is very serious.

If you do not contact your attorney and address the situation right away, your case could be dismissed, in which case you will lose the protection of the Bankruptcy Code and your creditors can resume collection actions against you, including repossession and foreclosure.

44. What happens if I can’t make a plan payment in Chapter 13?

If you do not make your plan payments, then the Trustee will ask the court to dismiss your case. If your case is dismissed, then your creditors will again to undertake all of their collection actions which may include foreclosure, repossession, garnishment, etc. How soon the Trustee will request a dismissal depends on the Trustee and the stage of your case.

Before your case is confirmed. If you have made no plan payments by the time the Trustee is to prepare his recommendation (about 90 days after the case is filed), he will file an order dismissing your case without any notice. If you have made some but not all payments, then the Trustee will include a requirement that payments be made by a certain date (usually within 30 days of the recommendation). If all payments are not made by that date, he can lodge an order dismissing the case without any further notice.

After your case has been confirmed. Usually the Trustee will take no action on a case until two payments have been dismissed. If you miss only one payment, but make it up, the Trustee will take no action. If you miss more than two payments, then the Trustee will file a Motion to Dismiss giving a specific amount of time (usually 30 days) for you to make up all the missed payments. If you do not make the payments within that time, then the case will be dismissed without further notice.

45. I have lost my job or cannot make my plan payments for another reason. What can I do to save my Chapter 13 Bankruptcy case?

If you are paying for arrears on your mortgage as a result of a foreclosure, then your plan may already be at a minimum and may not be able to be reduced. If your plan calls for a certain percentage to unsecured creditors (e.g. credit cards, etc.), which percentage was based upon a wage figure that you can no longer support, then the plan can be modified. Thereafter, you can file a motion to request that the payments to the unsecured creditors be reduced. However, your plan will have to still provide for full payment for your mortgage arrears, and any other arrears for auto loans. If your plan has no secured creditors, then you can modify the plan to reduce it to any reasonable level that the court will approve. Your attorney will need to file a motion to have the new plan approved.

46. I screwed up and my case was dismissed. Should I jump off the Verrazano Bridge?

NO! Many times dismissed cases can be reinstated upon a motion filed with the court. If you have a good reason for nonpayment of your plan, then your attorney can usually get the case reinstated at least one time, perhaps more than one time if you have enough grounds. This determination is left up to the bankruptcy court.

47. I screwed up and didn’t make my payments to my mortgage company after I filed. The mortgage company has moved for relief from the stay. What can I do to save my home?

As has been stated above, you are required to make all of your current mortgage payments after you file. This means immediately after you file for bankruptcy. Thus, if a case would be filed January 1, 2008, you must make a mortgage payment for January, 2008. If you don’t pay your mortgage, then the mortgage company will file a motion for relief from the stay. The purpose of this motion is to allow the mortgage company to commence or continue the foreclosure action in state court. In many cases, you can very often settle such motions by entering into a stipulation or a agreement to pay the post‑petition arrears over a short period and to pay the arrears in addition to your regular payment.

Stipulations should not be taken lightly. By entering into a stipulation, you often give up the opportunity to be late ever again in the bankruptcy case. Thus, if you are late again, ever, even after you have paid back all the arrears, then the bank will get immediate relief and take action against you in state court.

48. What should I do if the Chapter 13 Trustee has filed a Motion to Dismiss my case because I have missed plan payments?

If the Trustee’s office sends you a Motion to Dismiss or an Affidavit of Non‑Payment, call your attorney immediately. When these documents are submitted, your case is in imminent jeopardy of being dismissed. If your case is dismissed, your creditors can start collection actions against you. This is very serious. Usually these actions are filed by the Trustee because you are behind in your payments or because your plan cannot be completed as it was confirmed, which may be the result of higher‑than‑anticipated claims, stay relief being granted to one of your creditors, or any of a variety of other causes.

Your attorney may be able to work something out with the Trustee so that your case does not get dismissed. For this reason, it is very important that you call your attorney to discuss your options as soon as you receive a motion or affidavit. If you do nothing, your case will most likely be dismissed.

If you can make up all the missed payments, then you should pay them to the Trustee before the deadline (or hearing date) in the motion. If the payments are made, then the Trustee will ordinarily withdraw his motion. If you cannot make up the payments, then you should schedule an appointment with your attorney to see about modifying your plan.

Some possible modifications include:

a. If your plan is less than 60 months, then you may be able to add on the missed payment and modification charges to the end of your plan.

b. A Chapter 13 plan cannot be extended to more than 60 months. You may still be able to increase the remaining plan payments by the amount needed to pay the missed payments and modification charges.

c. You may be able to give up some secured property (usually a car) which is being paid by the plan. The amount which would have been paid to keep that property may be used to catch up plan payments and pay the modification charge.

d. In some cases, the only option may be to allow the case to be dismissed and re‑file Chapter 13 to get an additional 60 months to make all required payments.

49. What can I do if my case was dismissed? What options do I have?

Don’t jump off the bridge yet. If your Chapter 13 case dismissed then you may still have some hope. Some possible options are;

a. Move to reinstate your case. It may be possible to have the court reinstate your case. In all likelihood, the court and the trustee will allow the reinstatement only if you make up all of the payments which you have missed, and if you ask for the reinstatement no more than a few months after the case was dismissed.

b. Re‑file under Chapter 13. In most cases you can file a Chapter 13 even if a previous bankruptcy was just dismissed. The new plan could pay the claim secured by your vehicle and prevent its loss. You will, of course, have to qualify for Chapter 13 as you did before, and you may have to demonstrate that this subsequent filing was made in good faith.

c. Re‑file under Chapter 7. When your Chapter 13 was dismissed, you did not receive a discharge of any debt. If you file under Chapter 7, you probably will not be able to keep property secured by debt which was being paid by the Chapter 13, such as your car, but you can obtain a discharge of most kinds of debt.

You will have to wait 180 days after dismissal of your previous case to re‑file if that case was dismissed under either of two circumstances: (1) the case was dismissed on the court’s order because of your willful failure to obey orders of the court or to appear in court when required (your inability to make plan payments would not ordinarily be a willful failure to obey a court order); or (2) the case was dismissed at your request after the filing of a request for relief from the automatic stay. §109(g).

50. What happens when I complete all of my Chapter 13 payments/ obligations?

After you have completed payments under the plan, and if no objections to discharge are filed, the you will receive your  discharge in bankruptcy. The discharge is the ultimate prize in the bankruptcy process. Basically, the discharge “blowups” most of your debts that you listed in your bankruptcy petition. Unfortunately, the discharge does not affect the lien of secured claims. The discharge will cancel the personal liability only on those secured debts. Thus, means that if you owe money on the secured debt after you receive the chapter 13 discharge, then your collateral is still subject to a repossession, unless you remain current with your payments with that creditor.

If there are no objections to the discharge, then you can expect to receive your discharge order within a few weeks after your plan payments are complete. You will also have to complete your financial management course before you can receive your discharge. The discharge order is very important and it should be kept in a safe place. Don’t leave it on top of the refrigeration.If any of your creditors try to collect any of your old debts, then you should send them a copy of your discharge.

51. What if I forgot to list a creditor on my bankruptcy petition?

It is usually not a problem if it is caught before the confirmation hearing. This can be done even after the plan’s confirmation. There is a Bankruptcy Court fee of $26. Your attorney may also charge a reasonable additional fee for this additional service.

52. Can only one spouse file a Chapter 13 and stop foreclosure on a house owned by both spouses?

Yes. This occurs quite frequently. If one of the spouses does not need to be in bankruptcy other than for the foreclosure, then that particular spouse can be left out of the bankruptcy. Sometimes, we file Chapter 7 for one of the spouses and Chapter 13 for the other spouse. For example, this permits the Chapter 7 spouse to get an automobile financed sooner. An attorney should be consulted concerning this type of situation.

53. Will my credit union or bank close my bank accounts if I file Chapter 13?

If the credit union will lose money as a result of your bankruptcy, then they will close your account and ask you to leave the credit union. This often occurs when there is a signature loan, credit card debt or an unsecured debt created after an automobile is valued in a Chapter 13. Banks normally do not make you close out your account unless you have a long history of NSF checks.

54. What effect will a Chapter 13 have on a co‑debtor who does not file bankruptcy?

The Chapter 13 will show‑up on the non‑filing co‑debtors credit bureau report alongside of the joint debt. It won’t show in the public records section. If it is not a consumer debt or if it is a consumer debt but will not be paid in full under the Chapter 13 Plan, the creditor may proceed against the non‑filer.

55. What is a co‑debtor stay?

If the joint debt is a consumer debt (secured or unsecured) and the plan proposes to pay the debt in full, then the creditor is blocked by the Chapter 13 filing from taking collection action against the non‑filing co‑debtor

56. Can my employer fire me for filing bankruptcy?

No. Federal law 11 U.S.C. §525 is the anti‑discrimination section of the Bankruptcy Code that precludes a public or private employer from discriminating against any employee solely because he or she filed for bankruptcy. Employers usually honor this section and there are remedies if they try to violate it.

57. What happens if I inherit something during the 3 to 5 years that I am paying creditors under my Chapter 13 Plan?

The inheritance must be turned over to the Chapter 13 Trustee to be distributed to the unsecured creditors up to the extent of the allowed unsecured claims. If the potential exists for this to occur, then you need to discuss the matter with an attorney to look at some options.

58. If my Chapter 13 does not work, can I convert the case to a Chapter 7?

Yes. If the Chapter 13 Plan cannot be amended to handle changes in your financial affairs, you may find it advisable to convert to Chapter 7. You should consult your attorney before taking any such action.

59. What if I previously filed a Chapter 13 but my case was dismissed – can I file another Chapter 13?

Under the new Bankruptcy laws that went into effect in October 2005, if you have had a case pending within the 12 months of filing a new case, the automatic stay, which stops your creditors from taking actions to collect on your debts (i.e. foreclosure, repossession), is only in effect for 30 days. Within 30 days you must attend a hearing in front of one of our bankruptcy judges to explain why your previous case was dismissed and why your new case will be successfully completed. The court will determine whether or not to extend the automatic stay. However, if there are special circumstances which the court should be made aware of, we may be able to file an adversary proceeding in which we will be given the opportunity to explain your circumstances to the court and the court will decide whether or not to impose the stay.

60. What is financial/debtor education and am I required to take this course?

In order to be eligible for a bankruptcy discharge debtor must take a financial education course from an approved provider. The course usually lasts two hours and costs about $50. The course cannot be taken until after your bankruptcy has been filed and you have been assigned a case number. Upon completion of the course a certificate will be issued to you. The certificate must be filed with the bankruptcy court before your projected discharge date. If you become eligible for discharge and have not completed the course and filed the certificate with the court, your case may be closed without a discharge being issued. You must then pay to have your case reopened for the sole purpose of filing your certificate of financial education completion.

61. My father/mother’s home is in foreclosure and he/she has recently died. I was supposed to inherit the home. Can I save the home?

That depends upon whether title has passed to you. Estates cannot file a Chapter 13 case. Deceased persons cannot file a Chapter 13 case. One a person who has inherited real estate can file for a bankruptcy. The phrase “have inherited” is very important. If you received title through an estate, then there is no problem; you can file. However, if the estate is still in probate, and if the home is in the name of the decedent, then it is advisable to  have the executor transfer the home to you. Thereafter, you can then explore filing a Chapter 13 case.

62. What if my mortgage company or other creditor overcharges me? Do I have to accept the amount that they are overcharging me?

Just because you filed a bankruptcy, your creditors, and even and especially, your mortgage and car finance companies do not have the right to double charge, overcharge or charge without a reasonable explanation a sum amount in their proof of claim. A “proof of claim” is the document filed by a creditor stating what they believe you owe. Many proofs of claims are over inflated. Many proof of claims are wrong. Mortgage companies frequently  add unwarranted additional charges for all kinds of items. For instance, the mortgagee will bill you for sheriff’s charges. Thereafter, the mortgagee will not give you credit for money they receive back from the sheriff when you file bankruptcy. These fees can be substantial. The refund from the sheriff is often  $1,000 or more. You pay it in the claim, and then the mortgagee gets it again!

Fortunately, there is a way to handle any objection to any amount claimed from the debtor in bankruptcy. It is called an Objection to Proof of Claim and it can be filed for any claim.

63. I wrote a bad check to a creditor. Can that be discharged in a chapter 13?

In New Jersey the issuance of a bad check is a criminal offense. Most bad check charges are litigated in the local municipal courts. If the amount of the bad check is substantial, then the case will be sent up to your local County Prosecutor. If there is a pending bankruptcy case, and if the debtor has a bad check charge, then the Municipal Courts will not dismiss the criminal case. The bankruptcy will not protect you from criminal prosecution, and it will not discharge criminal liability for restitution, costs or fines. In addition, you can be arrested, notwithstanding the bankruptcy. It is strongly recommended that you satisfy all bad checks before you file.

Nonetheless, the Municipal Courts will not order the debtor to repay the amount of the bad check. The Municipal Court will consider that amount of the bad check discharged. However, the Municipal Court could still find the debtor guilty of a criminal charge. In this day and age, it is extremely important to keep your criminal record clean. Therefore, it is a very bad idea to try to discharge bad checks in the Bankruptcy Court. The debt will most likely be discharged. However, the debtor will obtain a criminal conviction. Based on my experience, it is extremely difficult for any person to obtain suitable employment if he has a criminal records, especially if the convictions involve issues of dishonesty and deceit. Therefore, it is very advisable for a debtor to repay any and all bad checks.

64. My auto-finance company stopped billing me after I filed a Chapter 13. I am now entitled to keep my car for free?

No. Bankruptcy does not give you a free car. It often stops your lien creditors from billing you monthly. For those who depend on receiving a bill every month, then you should have your attorney contact the vehicle loan company and request a bill. Some lenders require a reaffirmation before they will send you out a bill. It is extremely important for a Chapter 13 debtor to keep up on his car payments. I always advise a debtor to pay his payment via an automatic withdraw. Many banks will gladly pay a creditor every month from your account for a small fee, or sometimes for free. It is worth it! It is only important that the bill gets paid, it does not matter how. Unfortunately, you may just need to remember to pay the bill yourself. It could be a disaster for a debtor if he can’t keep his car. A debtor with bad credit will pay an interest rate of 14% to 20% on a new car loan. Therefore, all efforts should be undertaken to keep any current car loans up to date and paid.

65. I work “under the table.” Unfortunately, I only earn enough to feed my myself and my family. Will the Bankruptcy Court “rat me out” to the IRS?

Maybe, but even if it does not, the IRS will find out about your tax cheating ways sooner or later. The IRS is very serious about non‑filers. No plan can be confirmed if the debtor’s taxes are not filed with the IRS. If tax returns are outstanding, then the Trustee will object to your plan and your case will be eventually dismissed.

It is essential that all tax returns be filed for all years if you wish to have your plan confirmed. Under new bankruptcy legislation, it may be a condition precedent to filing a bankruptcy case. For now, the IRS will object to your confirmation, or may file a claim for estimated taxes which assure you will shock you with its size and you will have to pay it at the rate of 100%!

66. I have filed a Chapter 13 case, and I now want to sell my home. What steps to I have to take to sell my home?

In many cases, the debtor(s) in a Chapter 13 case realize that the best way out of their problems is sell their home. Many Chapter 13 are filed solely to permit the debtors to hold onto their home. However, many debtors give up, and they realize that they have to downsize because they can’t afford to pay the mortgage and the real estate taxes any longer.

If a debtor wants to sell their home during the bankruptcy, then they will have to file a motion with the Bankruptcy Court to request approval. After a sale, in most instances the Trustee will take control of the proceeds after the liens are paid. The realtor and attorney(s) will need to get court approval of their fees in order to get paid from the sale. Furthermore, all sales prices are subject to approval of the court. If the court feels that the sales price are not sufficient, then the court will not approve the sale.

67. After I file, how can I determine the status of my case?

As a debtor’s counsel I can obtain instant case status through the Internet. You can get a print out of your case status at any time simply by calling my office. This is a free service we are happy to afford you. If you have email, these case reports may be e‑mailed to you. The public also has access to PACER data. PACER is Public Access to Court Records and is available here. However, it does not have Trustee case reports. It does have docket reports and claims registers (so you can see who filed claims). You need to establish an account to use it though. This data is open to anyone, even nosey busy‑bodies who have no real reason to see it except to dig up dirt up their neighbors.

68. How does a Chapter 13 case end?

Once you complete your repayment plan, then all of your remaining debts that are eligible for discharge will be wiped out. Before you can receive a discharge, you must show the court that you are current on your child support and/or alimony obligations and that you have completed a budget counseling course with an agency approved by the United States Trustee. This requirement is separate from the mandatory credit counseling you must undergo before filing for bankruptcy ‑‑ you can find a list of approved agencies at the Trustee’s website.

69. Do I have to be current with my income tax filings to file for a Chapter 13?

To file for Chapter 13, you will have to submit proof that you filed your federal and state income tax returns for the four tax years prior to your bankruptcy filing date. If you need some time to get current on your filings, the court can postpone the proceedings. Ultimately, however, if you don’t produce your returns or transcripts of the returns for those four years, your Chapter 13 case will be dismissed.

70. What is the meaning of a bankruptcy discharge?

A discharge of debts means that you are no longer legally liable for any balances remaining to any creditors listed in your plan, with the exception of long‑term, ongoing debts, such as taxes, mortgages, alimony, child support, etc.

71. How does a discharge occur?

After your case has been completed and all outstanding disbursement checks to your creditors have cleared, then you will receive a copy of the Trustee’s Final Report and Account listing all creditors who were paid by the Trustee’s office. Approximately 30 to 90 days later, you will receive your Discharge of Debtor directly from the Court. Hold on to it

Keep both the Trustee’s Final Report and the Discharge of Debtor in a safe place. You will, most likely, need them at some point in the future to prove that your Chapter 13 case is closed. Even five years after the discharge, these documents may be required when trying to get a mortgage or buy a car.

A Discharge of Debtor does not necessarily mean that any judgments or liens are automatically removed. The discharge generally means that creditors who were listed in the petition may not proceed against you for the balance of any debt that was incurred prior to the filing of the case.  If, however, a creditor obtained a judgment against you prior to the filing of your Chapter 13 case, and that judgment was not dealt within your Plan, the judgment will remain.

If this pertains to you, contact your attorney to talk about your options with regard to removing the judgments or liens. You may be able to file a Motion to Void Judgments or Liens in the Bankruptcy Court to remove the judgments that were obtained by creditors prior to filing the case.

72. What is the legal effect of a bankruptcy discharge?

A bankruptcy discharge is a very powerful weapon. It basically voids most of your debts. Nonetheless, you must understand several things about your bankruptcy discharge:

a. Only debts listed on your bankruptcy schedules can be discharged.

If the debt is not listed, then it can’t be discharged. If you fail to list a debt in your bankruptcy, then you may have to file a motion to reopen the case to amend your schedules to add the omitted debt. This can be very expensive and time consuming for your lawyer. Therefore, I always advise all of my clients that the most important part of the bankruptcy process is to make sure that all of your debts are listed in your petition. Remember, your lawyer is not a mind reader, you have to assist him to ensure that all of your debts are properly listed.

b. Only the debts that are owed from the period before the bankruptcy was filed will be discharged.

The bankruptcy discharge will not discharge debts that you incurred during the bankruptcy process. Moreover, the bankruptcy discharge will not cover co‑signers on your debts and it will have no effect on most security debts, such as home mortgages or car loans.

Therefore, if you want to reaffirm a debt, avoid/strip a lien, then you must do this action before the confirmation process. Certain liens (judgments, levies, non‑purchase‑money interests in household goods) can be eliminated entirely by requesting the court to do so. There is an additional fee for this service. If you are interested in this service, then you should let me know and I will quote you a reasonable fee.

Other liens, like mortgages, motor vehicle encumbrances, and purchase money security in other goods cannot be eliminated.

If you think that any of these agreements or motions should be filed in your case, or if you want additional information, contact me. It is important to emphasize that you can pay anybody you want after your discharge. However, very few debtors do so. Depending on the length of your plan, you may not receive a discharge for 3 to 5 years.

The bankruptcy code prohibits the discharge of certain types of debts. These debts include, but are not limited to: educational loans that first became due less than seven years ago, child support, certain taxes, including income taxes less than three years old. Furthermore, your taxes may not be dischargeable even if they are more than three years old in certain circumstances. These are, but are not limited to the following: (I) If you did not file a return, or (ii) if you did not file a return on time.

In many instances, income taxes more than three years old may be dischargeable, however, to be sure, you must review your specific case with me.

It is important that you know the significance of your bankruptcy discharge. If a debt is discharged, then that creditor cannot force you to pay that particular debt. This means that the creditors cannot legally file a lawsuit against you for that debt, continue any lawsuit that was filed before the bankruptcy filing, send you collection letters, or harass you in any other way. If this type of harassment should continue to occur, then you should contact me immediately, and I may be able to sue the creditor.

73. The Trustee dismissed my case; can I just refile it?

Under most circumstances, your case can be refiled. However, there are limits on obtaining a new automatic stay. If a case is refiled, then it starts from the beginning. Thereafter, you have to attend a meeting of creditors again and the creditors must file new claims. Any relief the court granted you in the first case is not effective in the second.

74. Is there a limit to the number of times I can refile my case?

Yes there is. One of the major chances of BAPCPA is to prevent repetitive filings. Therefore, if a first (that is, the debtor is filing case #2) case is refiled with a year after a dismissal, then the automatic stay will expire 30 days after the filing unless it is extended for good cause shown. If a second case is filed within that time period (i.e. case #3 or more), the there is no stay unless the court imposes it. The debtor would need to file a motion with the court to obtain the stay. Before BAPCA many Chapter 13 debtors repeatedly filed multiple Chapter 13 cases. However, under BAPCPA there are strict limits on refiling cases. Therefore, this means pay your plan! Pay your current mortgage payments! Attend the meeting of creditors! And generally follow the advice of your attorney and the court directives, whatever they may be. If you cannot follow a court order, get your attorney to ask the judge to change it. He may be able to help you.

75. How will a Chapter 13 affect my credit?

A bankruptcy will hurt your ability to obtain credit for some time to come. That you have filed a Chapter 13 will appear on your credit record for seven years. Generally, the best way to obtain good credit is to pay your bills, or at least the minimum amount due, when they become due. A Chapter 13 will be listed on your credit record as just that; a Chapter 13 bankruptcy. Your creditors may also be able to see if you completed your plan successfully, which is certainly to your benefit. Some people may be fortunate enough to find a creditor willing to overlook their bankruptcy. This may or may not be you; the question is left entirely up to the individual creditor.

76. How long does bankruptcy remain on my credit bureau report and can I obtain credit before that time period runs?

A Chapter 13 bankruptcy can be kept in the public records section of your credit bureau report for 10 years. Once your Chapter 13 discharge is entered, if certain income and employment conditions are met, new automobile financing is available at most new car dealerships in New Jersey. If certain conditions are met, new mortgage financing is usually available after discharge with 15% down payment available. VA and FHA financing becomes available two years after discharge. Credit card solicitations will begin almost immediately after discharge.

77. How can I establish new credit after my Chapter 13 case?

Your credit rating during and after the completion of your Chapter 13 case will be based upon the opinion of any creditor who reviews your credit record. Your credit rating is not A, B, or C.  It is a record of all your past credit performances. It will take time to rebuild your credit. You can, however, contact the primary credit reporting agencies and advise them that you have successfully completed your Chapter 13 plan and have received a discharge.

You should contact these companies in writing and provide a copy of your Final Report and Account and your Discharge of Debtor as proof that your Chapter 13 case is now closed.

The primary credit reporting agencies are:

Equifax

PO BOX 740241

ATLANTA GA 30374,

Trans Union

PO BOX 390

SPRINGFIELD PA 19064, and

Experian

PO BOX 9556

ALLEN TX 75013.

When writing to any of the above agencies, be sure to include the following:

a. Your full name (including Jr., Sr., III, etc.),

b. Your Social Security number,

c. Your current and previous addresses within the last five years,

d. Your date of birth, and

e. Your signature.

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