Chicago Chapter 13 Bankruptcy

Chapter 13 Bankruptcy Overview – What is it?

Chapter 13 Bankruptcy is sometimes called a “wage-earner reorganization” bankruptcy. Chapter 13 of the United States Bankruptcy Code provides individual consumers a way to consolidate their debts into a three to five year payment plan, under the protection of the federal court. The code refers to the individual consumer filing as a “debtor;” one who owes a debt. Most debtors only have to pay back what they can afford to pay, rather than all of the debt. If the consumer has sufficient steady income allowing him to pay all current living expenses and also have a portion leftover each month to devote to a payment plan, then filing a Chapter 13 is an excellent solution when that leftover portion is not enough to pay off ALL debts, or to comply with creditor demands.

Unsecured debt is generally discharged, while secured debt is restructured. Calculating the repayment amount is complicated, and best suited for a trained Chapter 13 attorney, and is based on monthly disposable income, un-exempt equity in assets, and income as calculated by the “means test”. Debtors enjoy the ease of an affordable payment plan, the end of collection calls, and a stop to spiraling interest, which we can quickly become out of control if not stopped. People who are advised to file a Chapter 13 include: those behind in their mortgage or car notes that they can afford to keep, those who could lose property in a Chapter 7, wage earners who have the ability to repay some, but not all of their debts, recent Chapter 7 filers, those suffering from an inability to cope with the collection efforts by creditors of non-dischargeable debts, and those with unbearable tax obligations. If any of these scenarios sound familiar to you and you are wondering if you should file for Chapter 13, please give us a call and we’d be happy to discuss it with you.

Chapter 13 - Who can file?

Individual and couple debtors with regular income may file under Chapter 13. They must be United States residents and have unsecured debts of less than $360,475 and less than $1,081,400 in secured debts (as of April 2010; these “amount adjusts” every three years). Corporations and partnerships are not eligible to file under Chapter 13, but self-employed individuals and individuals who own unincorporated businesses can file Chapter 13. Also, a debtor from a prior bankruptcy case that was dismissed “with prejudice” within the prior 180 days cannot file within the prohibited time frame. Please give us a call today to see if you are eligible to file for Chapter 13.

Chapter 13 Bankruptcy Process - What Happens?

We submit a Chapter 13 “plan” to repay all or part or of your debts in monthly installments over a three to five year time period. The calculation of your plan payments is complicated since it involves many variables, but generally, the plan is not usually based on what you owe, but rather, is based on your ability to repay creditors, along with other factors, such as the types of debt you have. You can make certain decisions about whether to keep certain secured debt, for instance, but must pay certain tax debts and child support arrears in full. Typically for most unsecured dischargeable debt, such as credit card and medical debt, you only pay as much as you can afford, even if that means the plan only pays pennies on the dollar. Since the calculation is based on your income and expenses, generally speaking, what you have left at the end of the month goes into the plan, as detailed in the monthly budget we draw up for you and file with the court. We have your plan approved by the court, and then it becomes effective. Creditors are prohibited from collecting their claims directly from you after the bankruptcy filings as long as your case is active with the court and you are current with your payments.

Your first plan payment is due a month from the original filing date. You send your monthly plan payments to a “Chapter 13 Trustee.” The trustee in turn distributes the funds to the creditors pro rata, as called for in the plan. You are discharged from further liability for the remainder of your dischargeable debts upon completion of the plan payments.

Just like a Chapter 7, the court will schedule a Meeting of the Creditors about 4-6 weeks after filing. Creditors rarely attend the meeting. The trustee will review the petition filings and plan that we submit on your behalf, with both of us. The trustee will ask you to confirm the information and ask questions about your financial situation to make sure the proper budget for you is laid out. The trustee will inquire about any concerns he has about the feasibility of the plan at this time.

At the conclusion of the plan period, and assuming no complications, your case will come to an end, and you will be granted your discharge in bankruptcy. You must attend a debtor education course with a certified agency before the discharge can be issued. The Chicago Chapter 13 Trustees offer this class for free at their offices, or we can arrange for you to take the class at your home, any time you would like, with an agency that charges a small fee. Either way, the course is about an hour and a half of your time.

Chapter 13 bankruptcy filings are difficult. You will need the best representation to protect your rights, and to make sure your repayment plan pays your creditors at the best rate possible. Spalding Law Center has the experience to guide you through all the proceedings. Please give us a call for a free consultation today.