Chapter 13
A chapter 13 bankruptcy (instead of one under chapter 7) is a payment plan over time under which the debtor pays all or some part of his/her debts. Provided the debtor completes the plan, the remaining debts not paid in full are discharged (provided they are in the category of debts that may be discharged).
A major advantage of a chapter 13 bankruptcy is that the payment plan serves as a mechanism for the debtor to save his/her home from foreclosure by curing the mortgage arrearage over time. The payments the debtor makes to the chapter 13 trustee will be distributed by the trustee to the creditors. If the debtor’s home is scheduled for foreclosure, the chapter 13 plan will be fashioned so that the trustee will disburse enough to the mortgagee to cure the mortgage arrearage over the life of the chapter 13 plan. Simplified, if the debtor qualifies for a 60 month plan, this generally means the debtor can pay the mortgage arrearage back over 60 months while continuing to make the regular monthly mortgage payments. The debtor will need to be able to afford these payments and keep up with his/her other ordinary and necessary living expenses. A debtor generally is not a candidate for a successful chapter 13 plan if he/she cannot afford to make his/her regular monthly mortgage payments and pay the chapter 13 trustee a bit more than 1/60th of the mortgage arrearage each month.
Another advantage of chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for his/her primary residence) and extend them over the life of the chapter 13 plan. Doing this may lower the payments. Chapter 13 also has a special provision that protects third parties who are liable with the debtor on "consumer debts." This provision may protect co-signers. Finally, in chapter 13 a debtor may be able to strip a wholly unsecured mortgage from his residence and discharge the debt as the debtor discharges the other unsecured debts in the case.
Filing a Chapter 13 Case
An individual cannot file under chapter 13, however, or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. In addition, no individual may be a debtor under chapter 13 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. If a debt management plan is developed during required credit counseling, it must be filed with the court.
An individual with regular income, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual's unsecured debts and the individual’s secured debts are less than certain thresholds established by the bankruptcy code. As of the writing of this page, the unsecured debt thresholds is $383,175 and the secured debt thresholds is $1,149,525. These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation or partnership may not be a chapter 13 debtor.
A chapter 13 case begins by filing a petition with the bankruptcy court where the individual lives. In addition to the petition, the debtor must also file with the court certain schedules including income and expense information, information on any executory contracts, a statement of financial affairs, and a copy of the debtor’s credit counseling certificate and any debt repayment plan that was recommended by the credit counseling agency. Debtors must also provide the following documents to the chapter 7 trustee, although the documents are not filed with the court: a copy of the most recently filed federal tax return (and any returns filed later while the debtor is in bankruptcy); records of any income the debtor received within 60 days before the debtor filed bankruptcy (referred to as pay advices); and a record of any interest the debtor has in federal or state qualified education or tuition accounts. The debtor has to disclose to the bankruptcy court through his/her bankruptcy schedules everything in the world that the debtor owns with estimated values. Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse are required so that the court, the trustee, and creditors can evaluate the household's financial position – basically to ensure that the bankruptcy process is not being abused. Unless the court grants an extension, the debtor must file a repayment plan with the petition or within 14 days after the petition is filed.
When an individual files a chapter 13 petition in the District of New Hampshire, Lawrence Sumski will be appointed as the chapter 13 trustee -- he is the standing trustee who serves in all chapter 13 cases in this district. Trustee Sumski evaluates the case and serves as a disbursing agent, collecting payments from the debtor and making distributions to creditors. Filing a petition under chapter 13 "automatically stays" (stops) most collection actions against the debtor or the debtor's property. However, certain actions listed under Section 362(b) of the bankruptcy code are not stayed which generally includes certain actions relating to domestic matters. Also, the stay may be effective only for a short time in some situations explained in detail in the bankruptcy code. If you retain Deshaies Law to represent you in a bankruptcy, Attorney Deshaies will advise you as to whether any stay exceptions are expected to apply to your case. The stay arises by operation of law and generally requires no judicial action. Chapter 13 also contains a special automatic stay provision that protects co-debtors. Unless the bankruptcy court authorizes otherwise, a creditor may not seek to collect a "consumer debt" during the bankruptcy from any individual who is liable along with the debtor. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments for pre-petition claims. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor on the debtor’s bankruptcy schedules.
Within 30 days after filing the bankruptcy case, even if the plan has not yet been approved by the court, the debtor must start making plan payments to the trustee. If any secured loan payments or lease payments come due before the debtor's plan is confirmed the debtor generally must continue to make those payments.
The Mechanics of the Chapter 13 Plan
The debtor proposes a repayment plan to make installments, through the chapter 13 trustee, to creditors over three to five years. If the debtor's current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period "for cause." The most common “cause” to extend the plan beyond three years is that the debtor cannot afford to cure his/her mortgage in that short period of time. If the debtor's current monthly income is greater than the applicable state median, the plan must be for five years. In no case may a plan provide for payments for longer than five years. During the term of the plan, the law forbids creditors from starting or continuing collection for pre-petition (e.g. before bankruptcy) debts.
A chapter 13 plan acts like a consolidation loan under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals generally will have no direct contact with creditors regarding pre-petition debt while under chapter 13 protection. However, the chapter 13 debtor will need to communicate with the mortgagee when making the regular monthly mortgage payments outside of the plan and with other creditors regarding their ongoing ordinary and necessary monthly living which the debtor also will pay outside of the plan.
The chapter 13 plan must be submitted for court approval and must provide for payments of fixed amounts to Trustee Sumski monthly. He then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims.
There are three types of claims: priority, secured, and unsecured. Priority claims are those granted special status by the bankruptcy law, such as most taxes, domestic support obligations, and the costs of the bankruptcy proceeding. Secured claims are those for which the creditor has the right to take back certain property (i.e., the collateral) if the debtor does not pay the underlying debt. Priority debts are debts of a special nature such as certain taxes and domestic support obligations. Unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by the debtor.
The plan must pay priority claims in full unless a particular priority creditor agrees to different treatment of the claim. If the debtor wants to keep the collateral securing a particular claim, the plan must provide that the holder of the secured claim receive at least the value of the collateral. If the obligation underlying the secured claim was used to buy the collateral (e.g., a car loan), and the debt was incurred within certain time frames before the bankruptcy filing, the plan must provide for full payment of the debt, not just the value of the collateral (which may be less due to depreciation). Payments to certain secured creditors (i.e., the home mortgage lender), may be made over the original loan repayment schedule (which may be longer than the plan) so long as any arrearage is cured during the life of the plan. Deshaies Law will draft your plan with the goal of maximizing the payment of your priority and secured debt to the extent allowed under the law.
The plan need not pay unsecured claims in full as long as the debtor will commit all of his/her projected "disposable income" to the plan for the life of the plan and the total amount paid into the plan is sufficient that “unsecured creditors will receive under the plan at least as much as they would have received if the debtor filed a chapter 7 bankruptcy.
Preparing a confirmable and affordable chapter 13 plan can be complicated. Sometimes a bit of creativity is needed. Deshaies Law is happy and willing to go the extra mile to help you fashion a confirmable plan that works for you.
The Meeting of Creditors and Confirmation Hearing
Between 21 and 50 days after the debtor files the chapter 13 petition, Trustee Sumski will hold a meeting of creditors. During this meeting, the debtor will testify under oath regarding his or her financial affairs and the proposed terms of the plan. Trustee Sumski and creditors may ask questions. If a husband and wife file a joint petition, they both must attend the creditors' meeting and answer questions. Generally, the debtor can avoid problems by making sure that he/she has been careful and thorough in providing Deshaies Law with all the information requested during the bankruptcy preparation process. This will help to ensure that the petition and plan are complete and accurate, and that Deshaies Law has the opportunity to be aware of and work to resolve any potential issues early in the process. This will make the process go much smoother.
No later than 45 days after the meeting of creditors, the bankruptcy judge must hold a confirmation hearing and decide whether the plan is feasible and meets the standards for confirmation set forth in the bankruptcy code. Creditors will receive 28 days' notice of the hearing and may object to confirmation. While a variety of objections may be made, the most frequent objections are that payments offered under the plan are less than creditors would receive if the debtor's assets were liquidated or that the debtor's plan does not commit all of the debtor's projected disposable income for the term of the plan. If the court confirms the plan, the Trustee Sumski will distribute funds received under the plan by making monthly distributions.
The provisions of a confirmed plan bind the debtor and each creditor. Once the court confirms the plan, the debtor must make the plan succeed by making all payments required under the plan. The debtor may not incur new debt without consulting the trustee and the court because additional debt may compromise the debtor's ability to complete the plan. If the debtor fails to make the payments due under the confirmed plan, the court may dismiss the case or convert it to a liquidation case under chapter 7. The court may also dismiss or convert the debtor's case if the debtor fails to pay any post-filing domestic support obligations (i.e., child support, alimony), or fails to file his/her taxes on time during the case. It the case is dismissed, the debtor will not receive a discharge.
The Discharge
The scope of the chapter 13 discharge is complex and has recently undergone major changes. It is somewhat broader than in a chapter 7 case. Debtors should consult with Deshaies Law regarding the scope of their chapter 13 discharge. Generally, the discharge releases the debtor from all debts provided for by the plan or disallowed (under section 502), with limited exception. Creditors provided for in full or in part under the chapter 13 plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations.
It is important to note that none of your debts will be discharged if you fail to make the payments under your chapter 13 plan. A chapter 13 debtor is entitled to a discharge only upon completion of all payments under the chapter 13 plan and so long as the debtor: certifies that all post-petition domestic support obligations have been paid; has not received a discharge in a prior case filed within a certain time frame (two years for prior chapter 13 cases and four years for prior chapter 7, 11 and 12 cases); and has completed an approved course in financial management. In the event that the debtor fails to complete the plan payments due to circumstances for which the debtor should not justly be held accountable, there is a provision allowing for a debtor to apply for a hardship discharge. The burden is on the debtor to show why he/she was unable to complete the plan and how those circumstances are permanent. (A temporary job loss or temporary physical disability won’t be sufficient.) The debtor may need to bring medical evidence to court. Also to be considered for a hardship discharge, the debtor must have already paid through the plan at least what the creditors would have received if the debtor had filed a chapter 7 bankruptcy and the debtor’s non-exempt property were liquidated. Finally, modification of the chapter 13 plan must not be practical (e.g. the debtor wouldn’t be able to make payments even under a modified plan).
After Bankruptcy
Immediately after you file bankruptcy, your credit scores will fall dramatically. However, after your discharge is issued there are ways to rebuild credit and increase your scores with patience. There are many companies that will lend you money after bankruptcy but at a higher rate of interest. Your job will be to make sure you pay all bills on time and limit your use of credit. Some experts suggest is that when rebuilding your credit you should keep your balances at no more than fifty percent of each available credit line (thirty percent is better). They suggest further that having multiple pieces of credit generally is not a problem but having high balances in relation to available credit is not helpful. Also, you absolutely must make all of your payments on time and be sure you are paying off principle and not just minimum interest payments.
One of the best methods to rebuild credit may be to obtain a secured credit card. These cards are fairly easy to obtain and are available through most major banks. Banks generally will allow you to open a secured credit account with a minimum of $500.00. Your credit scores will eventually rise as your positive credit builds and the bankruptcy effect lessens with the passing of time.
The most important payment to make each month is your mortgage payment. However, usually when you file for a personal bankruptcy, whether it is a chapter 7 or a chapter 13, even if you make all of your mortgage payments on time, your credit report will not reflect this. This is because generally debtors choose not to reaffirm a mortgage. The result is that they are no longer personally liable on the note but the lien remains on the property and the mortgagee can foreclose if you do not pay on time. If you are no longer personally liable, they generally will not report your payments to the credit bureaus. One of the best ways to rectify the fact that the mortgagee is no longer reporting is by refinancing the current mortgage and beginning fresh with a new lender. This allows the old, negative mortgage history to slowly slide to the back of the credit report, losing significance over time, and ultimately falling off the report altogether. You should reaffirm or refinance a mortgage only if you will be comfortable making the payments and there is real equity in the property. A reaffirmation or refinance will make you personally liable again which would include continuing personal liability if the property goes to foreclosure after reaffirmation or refinance and the foreclosure sale price is not high enough to pay the debt in full. You should discuss these issues with your bankruptcy counsel as part of the chapter 13 process and proceed with a refinance or reaffirmation only have careful consideration.
More Questions? Check out our Chapter 13 FAQ's
Deshaies Law has extensive experience in all aspects of the bankruptcy process and has guided many debtors to a brighter future. Deshaies Law would like to help you through your difficult situation.
Please call (603) 580-1416 to schedule your free initial consultation.
The above summary was derived from a publication of the Bankruptcy Judges Division of the Administrative Office of the United States Courts 2011 Edition entitled Bankruptcy Basics. It has been modified by removing legal citations and select sections to condense the materials. Some of the content has been re-worded and rearranged to suit the needs of Deshaies Law. The full, unabridged version can be found at the Court’s website at: http://www.nhb.uscourts.gov by clicking on “Filing Resources” then “Filing without a Lawyer,” and then “Bankruptcy Basics.”
A major advantage of a chapter 13 bankruptcy is that the payment plan serves as a mechanism for the debtor to save his/her home from foreclosure by curing the mortgage arrearage over time. The payments the debtor makes to the chapter 13 trustee will be distributed by the trustee to the creditors. If the debtor’s home is scheduled for foreclosure, the chapter 13 plan will be fashioned so that the trustee will disburse enough to the mortgagee to cure the mortgage arrearage over the life of the chapter 13 plan. Simplified, if the debtor qualifies for a 60 month plan, this generally means the debtor can pay the mortgage arrearage back over 60 months while continuing to make the regular monthly mortgage payments. The debtor will need to be able to afford these payments and keep up with his/her other ordinary and necessary living expenses. A debtor generally is not a candidate for a successful chapter 13 plan if he/she cannot afford to make his/her regular monthly mortgage payments and pay the chapter 13 trustee a bit more than 1/60th of the mortgage arrearage each month.
Another advantage of chapter 13 is that it allows individuals to reschedule secured debts (other than a mortgage for his/her primary residence) and extend them over the life of the chapter 13 plan. Doing this may lower the payments. Chapter 13 also has a special provision that protects third parties who are liable with the debtor on "consumer debts." This provision may protect co-signers. Finally, in chapter 13 a debtor may be able to strip a wholly unsecured mortgage from his residence and discharge the debt as the debtor discharges the other unsecured debts in the case.
Filing a Chapter 13 Case
An individual cannot file under chapter 13, however, or any other chapter if, during the preceding 180 days, a prior bankruptcy petition was dismissed due to the debtor's willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. In addition, no individual may be a debtor under chapter 13 or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing. If a debt management plan is developed during required credit counseling, it must be filed with the court.
An individual with regular income, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual's unsecured debts and the individual’s secured debts are less than certain thresholds established by the bankruptcy code. As of the writing of this page, the unsecured debt thresholds is $383,175 and the secured debt thresholds is $1,149,525. These amounts are adjusted periodically to reflect changes in the consumer price index. A corporation or partnership may not be a chapter 13 debtor.
A chapter 13 case begins by filing a petition with the bankruptcy court where the individual lives. In addition to the petition, the debtor must also file with the court certain schedules including income and expense information, information on any executory contracts, a statement of financial affairs, and a copy of the debtor’s credit counseling certificate and any debt repayment plan that was recommended by the credit counseling agency. Debtors must also provide the following documents to the chapter 7 trustee, although the documents are not filed with the court: a copy of the most recently filed federal tax return (and any returns filed later while the debtor is in bankruptcy); records of any income the debtor received within 60 days before the debtor filed bankruptcy (referred to as pay advices); and a record of any interest the debtor has in federal or state qualified education or tuition accounts. The debtor has to disclose to the bankruptcy court through his/her bankruptcy schedules everything in the world that the debtor owns with estimated values. Married individuals must gather this information for their spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. In a situation where only one spouse files, the income and expenses of the non-filing spouse are required so that the court, the trustee, and creditors can evaluate the household's financial position – basically to ensure that the bankruptcy process is not being abused. Unless the court grants an extension, the debtor must file a repayment plan with the petition or within 14 days after the petition is filed.
When an individual files a chapter 13 petition in the District of New Hampshire, Lawrence Sumski will be appointed as the chapter 13 trustee -- he is the standing trustee who serves in all chapter 13 cases in this district. Trustee Sumski evaluates the case and serves as a disbursing agent, collecting payments from the debtor and making distributions to creditors. Filing a petition under chapter 13 "automatically stays" (stops) most collection actions against the debtor or the debtor's property. However, certain actions listed under Section 362(b) of the bankruptcy code are not stayed which generally includes certain actions relating to domestic matters. Also, the stay may be effective only for a short time in some situations explained in detail in the bankruptcy code. If you retain Deshaies Law to represent you in a bankruptcy, Attorney Deshaies will advise you as to whether any stay exceptions are expected to apply to your case. The stay arises by operation of law and generally requires no judicial action. Chapter 13 also contains a special automatic stay provision that protects co-debtors. Unless the bankruptcy court authorizes otherwise, a creditor may not seek to collect a "consumer debt" during the bankruptcy from any individual who is liable along with the debtor. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments for pre-petition claims. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor on the debtor’s bankruptcy schedules.
Within 30 days after filing the bankruptcy case, even if the plan has not yet been approved by the court, the debtor must start making plan payments to the trustee. If any secured loan payments or lease payments come due before the debtor's plan is confirmed the debtor generally must continue to make those payments.
The Mechanics of the Chapter 13 Plan
The debtor proposes a repayment plan to make installments, through the chapter 13 trustee, to creditors over three to five years. If the debtor's current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period "for cause." The most common “cause” to extend the plan beyond three years is that the debtor cannot afford to cure his/her mortgage in that short period of time. If the debtor's current monthly income is greater than the applicable state median, the plan must be for five years. In no case may a plan provide for payments for longer than five years. During the term of the plan, the law forbids creditors from starting or continuing collection for pre-petition (e.g. before bankruptcy) debts.
A chapter 13 plan acts like a consolidation loan under which the individual makes the plan payments to a chapter 13 trustee who then distributes payments to creditors. Individuals generally will have no direct contact with creditors regarding pre-petition debt while under chapter 13 protection. However, the chapter 13 debtor will need to communicate with the mortgagee when making the regular monthly mortgage payments outside of the plan and with other creditors regarding their ongoing ordinary and necessary monthly living which the debtor also will pay outside of the plan.
The chapter 13 plan must be submitted for court approval and must provide for payments of fixed amounts to Trustee Sumski monthly. He then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims.
There are three types of claims: priority, secured, and unsecured. Priority claims are those granted special status by the bankruptcy law, such as most taxes, domestic support obligations, and the costs of the bankruptcy proceeding. Secured claims are those for which the creditor has the right to take back certain property (i.e., the collateral) if the debtor does not pay the underlying debt. Priority debts are debts of a special nature such as certain taxes and domestic support obligations. Unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by the debtor.
The plan must pay priority claims in full unless a particular priority creditor agrees to different treatment of the claim. If the debtor wants to keep the collateral securing a particular claim, the plan must provide that the holder of the secured claim receive at least the value of the collateral. If the obligation underlying the secured claim was used to buy the collateral (e.g., a car loan), and the debt was incurred within certain time frames before the bankruptcy filing, the plan must provide for full payment of the debt, not just the value of the collateral (which may be less due to depreciation). Payments to certain secured creditors (i.e., the home mortgage lender), may be made over the original loan repayment schedule (which may be longer than the plan) so long as any arrearage is cured during the life of the plan. Deshaies Law will draft your plan with the goal of maximizing the payment of your priority and secured debt to the extent allowed under the law.
The plan need not pay unsecured claims in full as long as the debtor will commit all of his/her projected "disposable income" to the plan for the life of the plan and the total amount paid into the plan is sufficient that “unsecured creditors will receive under the plan at least as much as they would have received if the debtor filed a chapter 7 bankruptcy.
Preparing a confirmable and affordable chapter 13 plan can be complicated. Sometimes a bit of creativity is needed. Deshaies Law is happy and willing to go the extra mile to help you fashion a confirmable plan that works for you.
The Meeting of Creditors and Confirmation Hearing
Between 21 and 50 days after the debtor files the chapter 13 petition, Trustee Sumski will hold a meeting of creditors. During this meeting, the debtor will testify under oath regarding his or her financial affairs and the proposed terms of the plan. Trustee Sumski and creditors may ask questions. If a husband and wife file a joint petition, they both must attend the creditors' meeting and answer questions. Generally, the debtor can avoid problems by making sure that he/she has been careful and thorough in providing Deshaies Law with all the information requested during the bankruptcy preparation process. This will help to ensure that the petition and plan are complete and accurate, and that Deshaies Law has the opportunity to be aware of and work to resolve any potential issues early in the process. This will make the process go much smoother.
No later than 45 days after the meeting of creditors, the bankruptcy judge must hold a confirmation hearing and decide whether the plan is feasible and meets the standards for confirmation set forth in the bankruptcy code. Creditors will receive 28 days' notice of the hearing and may object to confirmation. While a variety of objections may be made, the most frequent objections are that payments offered under the plan are less than creditors would receive if the debtor's assets were liquidated or that the debtor's plan does not commit all of the debtor's projected disposable income for the term of the plan. If the court confirms the plan, the Trustee Sumski will distribute funds received under the plan by making monthly distributions.
The provisions of a confirmed plan bind the debtor and each creditor. Once the court confirms the plan, the debtor must make the plan succeed by making all payments required under the plan. The debtor may not incur new debt without consulting the trustee and the court because additional debt may compromise the debtor's ability to complete the plan. If the debtor fails to make the payments due under the confirmed plan, the court may dismiss the case or convert it to a liquidation case under chapter 7. The court may also dismiss or convert the debtor's case if the debtor fails to pay any post-filing domestic support obligations (i.e., child support, alimony), or fails to file his/her taxes on time during the case. It the case is dismissed, the debtor will not receive a discharge.
The Discharge
The scope of the chapter 13 discharge is complex and has recently undergone major changes. It is somewhat broader than in a chapter 7 case. Debtors should consult with Deshaies Law regarding the scope of their chapter 13 discharge. Generally, the discharge releases the debtor from all debts provided for by the plan or disallowed (under section 502), with limited exception. Creditors provided for in full or in part under the chapter 13 plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations.
It is important to note that none of your debts will be discharged if you fail to make the payments under your chapter 13 plan. A chapter 13 debtor is entitled to a discharge only upon completion of all payments under the chapter 13 plan and so long as the debtor: certifies that all post-petition domestic support obligations have been paid; has not received a discharge in a prior case filed within a certain time frame (two years for prior chapter 13 cases and four years for prior chapter 7, 11 and 12 cases); and has completed an approved course in financial management. In the event that the debtor fails to complete the plan payments due to circumstances for which the debtor should not justly be held accountable, there is a provision allowing for a debtor to apply for a hardship discharge. The burden is on the debtor to show why he/she was unable to complete the plan and how those circumstances are permanent. (A temporary job loss or temporary physical disability won’t be sufficient.) The debtor may need to bring medical evidence to court. Also to be considered for a hardship discharge, the debtor must have already paid through the plan at least what the creditors would have received if the debtor had filed a chapter 7 bankruptcy and the debtor’s non-exempt property were liquidated. Finally, modification of the chapter 13 plan must not be practical (e.g. the debtor wouldn’t be able to make payments even under a modified plan).
After Bankruptcy
Immediately after you file bankruptcy, your credit scores will fall dramatically. However, after your discharge is issued there are ways to rebuild credit and increase your scores with patience. There are many companies that will lend you money after bankruptcy but at a higher rate of interest. Your job will be to make sure you pay all bills on time and limit your use of credit. Some experts suggest is that when rebuilding your credit you should keep your balances at no more than fifty percent of each available credit line (thirty percent is better). They suggest further that having multiple pieces of credit generally is not a problem but having high balances in relation to available credit is not helpful. Also, you absolutely must make all of your payments on time and be sure you are paying off principle and not just minimum interest payments.
One of the best methods to rebuild credit may be to obtain a secured credit card. These cards are fairly easy to obtain and are available through most major banks. Banks generally will allow you to open a secured credit account with a minimum of $500.00. Your credit scores will eventually rise as your positive credit builds and the bankruptcy effect lessens with the passing of time.
The most important payment to make each month is your mortgage payment. However, usually when you file for a personal bankruptcy, whether it is a chapter 7 or a chapter 13, even if you make all of your mortgage payments on time, your credit report will not reflect this. This is because generally debtors choose not to reaffirm a mortgage. The result is that they are no longer personally liable on the note but the lien remains on the property and the mortgagee can foreclose if you do not pay on time. If you are no longer personally liable, they generally will not report your payments to the credit bureaus. One of the best ways to rectify the fact that the mortgagee is no longer reporting is by refinancing the current mortgage and beginning fresh with a new lender. This allows the old, negative mortgage history to slowly slide to the back of the credit report, losing significance over time, and ultimately falling off the report altogether. You should reaffirm or refinance a mortgage only if you will be comfortable making the payments and there is real equity in the property. A reaffirmation or refinance will make you personally liable again which would include continuing personal liability if the property goes to foreclosure after reaffirmation or refinance and the foreclosure sale price is not high enough to pay the debt in full. You should discuss these issues with your bankruptcy counsel as part of the chapter 13 process and proceed with a refinance or reaffirmation only have careful consideration.
More Questions? Check out our Chapter 13 FAQ's
Deshaies Law has extensive experience in all aspects of the bankruptcy process and has guided many debtors to a brighter future. Deshaies Law would like to help you through your difficult situation.
Please call (603) 580-1416 to schedule your free initial consultation.
The above summary was derived from a publication of the Bankruptcy Judges Division of the Administrative Office of the United States Courts 2011 Edition entitled Bankruptcy Basics. It has been modified by removing legal citations and select sections to condense the materials. Some of the content has been re-worded and rearranged to suit the needs of Deshaies Law. The full, unabridged version can be found at the Court’s website at: http://www.nhb.uscourts.gov by clicking on “Filing Resources” then “Filing without a Lawyer,” and then “Bankruptcy Basics.”
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603-882-3223
CONCORD:
603-223-0063
TEXT:
603-490-3177