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HOW LONG DOES A CHAPTER 13 BANKRUPTCY LAST?
Chapter 13 Plans last between 36 and 60 months, depending on the debtor's financial circumstances, and as decided by the Bankruptcy Court.
WHAT IS THE CHAPTER 13 PROCESS?
The Chapter 13 process is quite powerful, but also quite detailed in it's requirements. First your attorney files a petition on your behalf in the federal Bankruptcy Court. In addition to a complete list of creditors, a schedule of assets and liabilities, and a schedule of current income and current expenditures, the debtor must also file a "Statement of Financial Affairs". This statement must indicate:
- Any income of the debtor from employment or operation of business including the amounts and the sources.
- Any other income.
- A list of all payments made to creditors of consumer debts within 90 days of the commencement of the bankruptcy filing.
- A list of all payments made within 1 year of filing to or for benefit of creditors who were insiders (relatives, partners, corporations of which debtor is an officer).
- A list of suits to which the debtor is, or was, a party within one year prior to filing.
- A list of all property attached, garnished, or seized.
- A list f all property that was repossessed within 1 year before filing.
- A list of any assignment of property for benefit of creditors within 120 days before filing.
- A list of gifts and charitable contributions made within 1 year of filing.
- All losses from fire, theft, gambling etc. within 1 year or since the commencement of the action.
- Any payments made for debt counseling or bankruptcy (including attorneys).
- Any transfers of property made within 2 years before filing.
- Any property transferred to a trust within 10 years prior to filing.
- All financial accounts that were closed within 1 year.
- All safe deposit boxes.
- Any setoffs to creditors.
- Any property held for another.
- All premises occupied within last 3 years.
- The names and addresses of spouses and former spouses if the debtor lived in a community property state.
- Any businesses.
A bankruptcy filing is not a process to be taken lightly. It is extremely important that all the forms are completed accurately. Debts that are not listed will not be discharged at the completion of the bankruptcy proceeding. Failing to list assets in an attempt to hide them from creditors may result in the denial of discharge or charges of bankruptcy fraud. The filing of the bankruptcy petition must be accompanied by a proposed payment plan over three to five years. The proposed payment plan must provide for the payment of all "priority claims" in full unless the particular priority creditor agrees to a different plan or, if the claim is a domestic support obligation, the debtor agrees to contribute all of his/her disposable income to a five year plan. "Priority claims" are those claims that are given a special status under bankruptcy law, such as taxes and the costs of the bankruptcy proceeding.
At this time, although consumer-oriented bankruptcy attorneys like us are working diligently to change existing limitations, there are limitations on the ability to modify the mortgage payments due on owner-occupied home mortgage loans under Chapter 13. Unlike our out-of-court loss mitigation efforts, which allow for the subjective evaluations of individual circumstance, within the Chapter 13 system payment formulas are very rigidly and objectively structured. Chapter 13 requires the full regularly scheduled payment and an additional "plan" payment sufficient to pay arrears in 36 to 60 months. This is regardless of any unreasonable adjustments in payments, assertions of predatory lending or misappropriation of client funds prior to the bankruptcy filing. Unfortunately for most people who are victims of "exploding adjustable rate mortgages" (ARMs), this Chapter 13 system is inadequate and will simply not save the home.
Once filed, the bankruptcy trustee appointed by the Bankruptcy Court must review the proposed plan for accuracy and feasibility. The proposed plan is distributed to creditors who have the right to object to the plan if it is unreasonable. If the plan is approved, the debtor keeps all assets during the period of the plan. The debtor makes monthly payments to the bankruptcy trustee who distributes the funds to the creditors according to the plan. If the plan is completed as approved, the debtor is discharged from unpaid debts. If the proposed plan is not completed as approved, several alternatives are open to the debtor depending upon the reasons for the non-completion of the plan.
The bankruptcy trustee may agree to a modification to the plan if the debtor is unable to complete it, because of circumstances such as serious illness or loss of a job. If the inability to complete the plan is due to circumstances for which the debtor cannot "justly be held accountable," and if his/her creditors received at least as much as they would have under Chapter 7, and modification is not possible, the debtor can apply for a hardship discharge. The hardship discharge does not apply to debts that were not dischargeable under Chapter 7. See 11 USC 1328(b).
If the debtor fails to maintain payments on the plan, creditors may apply to the Bankruptcy Court to terminate the Chapter 13 proceeding by dismissing the proceeding entirely. If the proceeding is dismissed in its entirety, collection efforts against the debtor's assets may resume as before.
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