Chapter 13 in Tucson &
Southern Arizona
Chapter 13 Bankruptcy Process
The initial bankruptcy process is similar to that discussed in our Chapter 7 review (see Chapter 7 Overview). The case is commenced upon filing a petition, consisting of various financial schedules that disclose income, expenses, debts, statement of financial affairs, etc. However, a Chapter 13 petition also requires that a repayment “plan” be filed as well. After filing, the trustee will send the debtors a questionnaire and request for supplemental documentation.
Debtors will meet the trustee at the § 341 Meeting of Creditors, which is typically scheduled 40 days from the date of filing. After the hearing, the trustee will submit her “trustee objection.” This filing will include standard language, as well as, specific objections that she may have to the particular plan. After the trustee submits the objection, the attorney works with the debtor to cure any issues and then a “stipulation of confirmation” is filed with the court.
The confirmation is the amended plan that is approved by the trustee, debtor, debtor’s attorney, and any objection creditors. All parties must sign the stipulation. This document is then submitted to the court for approval. Once the plan is confirmed, the debtor merely continues to make payments for the remaining duration of the plan.
The Chapter 13 Plan
The Chapter 13 plan provides a proposed reorganization that includes the classification of debt. Debts are categorized as priority, secured, and unsecured. A “priority debt” receives its special status from the bankruptcy code, and commonly includes most taxes, domestic support obligations, and administrative costs tied to the bankruptcy proceeding. Secured debts are those claims that have liens against underlying collateral, which commonly includes homes, vehicles, furniture, and jewelry. Unsecured debts are those for which there is no underlying collateral.
The bankruptcy code requires that priority claims be paid in full unless such a creditor agrees otherwise. However, with a domestic support obligation, the debtor is only required to contribute all of their “disposable income” (11 U.S.C. § 1322(a)). With secured debt, such as a vehicle, the plan must propose the amount to be repaid (which will vary depending on whether the property was owned for more or less than 910 days), and include interest that is set at Prime rate plus a very low margin.
Home loans are repaid respective to the original or modified terms that predate the filing of the bankruptcy. If a debtor is current on their mortgage, they will continue to pay the lender directly. If delinquent, the debtor will make the mortgage payment through the trustee, called a “conduit” payment. If the second mortgage is wholly unsecured, meaning the value of the home is worth less than the outstanding first mortgage, the second mortgage will be treated as an unsecured debt and eventually eliminated.
General unsecured debt is repaid based on a debtor’s ability. This is determined by a debtor’s projected budget, which includes gross income from all sources, minus monthly expenses. The debtor, at minimum, must pay unsecured creditors as much under the plan, as the unsecured creditors would have received had the debtor filed a Chapter 7 bankruptcy (called “Chapter 7 reconciliation amount”)(11 U.S.C. § 1325).
The length of the plan, known as the “applicable commitment period” depends on whether the debtor is above or below the median income. If the debtor is below the median income, the applicable commitment period is three years. If the debtor is above the median income, the applicable commitment period is five years (See Hamilton v. Lanning, 130 S.Ct. 2464 (2010) & 11 U.S.C. § 1325(d)). An above median income debtor can reduce the applicable plan length by paying the unsecured creditors in full.
Living within a Chapter 13 Bankruptcy
A Chapter 13 bankruptcy provides a comprehensive debt consolidation option with various enhanced benefits for the debtors. With the benefits of debt relief come the reality of living on a confined budget. The budget is designed to accommodate a debtor’s fundamental needs and monthly expenses with balancing the goal of optimized repayment.
For some debtors, the chapter 13 plan actually relieves financial pressure. This is accomplished by consolidating minimum payments on credit cards, car payments, mortgage arrearages, taxes, and other outstanding debts, which effectively improves a debtor’s monthly cash flow. Inversely, if a debtor has not been repaying debt, the Chapter 13 plan can be confining at first. In both scenarios, the budget provides fundamental practices that can be followed long after the bankruptcy process has concluded.
Because the plan is three to five years in length, it is understood that life events will happen that may compromise a debtor’s ability to make payments. Therefore, the Chapter 13 plan can be amended or modified as necessary, or the proceeding can be converted to a Chapter 7 bankruptcy, dismissed, or concluded with a hardship discharge. In addition, a debtor can replace vehicles and otherwise petition the court for assistance as necessary to facilitate the life of the plan.
In summary, the purpose of a Chapter 13 is to provide debt relief. A Chapter 13 is not designed to fail. To ensure success, the Tucson debtors should work with an experienced Chapter 13 attorney that will provide clients with valuable insight on how to properly prepare for bankruptcy, as well as, walk them through the process. If you are considering filing for bankruptcy, do not hesitate to work with a Tucson bankruptcy attorney from the Law Offices of Matthew T. Foley, PLC.
Hiring a Tucson Attorney for Chapter 13 Bankruptcy
When it is time for you to move forward with your bankruptcy case, it is important that you retain the legal counsel of a trustworthy, experienced and personable attorney. At our firm, we are proud to have assisted clients in filing more than 4,000 bankruptcy cases and we may be able to help you as well. If you have questions or concerns regarding your particular situation and wish to speak with a Tucson bankruptcy attorney regarding your situation, do not hesitate to Contact the Law Offices of Matthew T. Foley, PLC right away. Our firm stands ready to provide you with outstanding representation and personalized service. Contact the firm today to get started!