Frequently Asked Questions:

1. What is Chapter 13?

Chapter 13 is that portion of the U.S. Bankruptcy Code under which a person may repay debts under the supervision and protection of the bankruptcy court. Chapter 13 is sometimes also referred to as a “Wage Earner Plan” or a “Personal Reorganization.”

2. What is a “debtor”?

A person who files a bankruptcy is called a debtor. Married couples may file a bankruptcy case jointly, but that is the only instance in which the debtor in a bankruptcy case can be more than one person. Corporations, probate estates, partnerships, limited partnerships and trusts are not eligible to file Chapter 13 cases.

3. What is a “creditor”?

A creditor is someone with a claim against the debtor for money or other property.

4. What is a “secured” creditor?

A secured creditor is a creditor who claims the right to satisfy the debt, in whole or in part, through an interest in property owned by the debtor. Such an interest can arise by voluntary transfer (as in a mortgage in real estate or a security agreement in personal property), or involuntary transfer either by order of a court (a judgment lien) or by statute (as in a tax lien or mechanics lien). These interests in the debtor’s property can survive the bankruptcy, so these creditors are generally treated more favorably than unsecured creditors in Chapter 7 or 13.

5. What is a “priority” creditor?

Certain debts (for example, most taxes) are given special status in bankruptcy law. Some priority debts are non-dischargeable in a chapter 7 case. In Chapter 13, these claims generally must be paid in full through the Chapter 13 plan. However, the repayment period can be extended for as much as five years, without interest or penalty, so there is often a substantial benefit in paying such debts through a Chapter 13 Plan.

6. What is a “general unsecured claim”?

All debts which are neither secured nor priority claims, and do not relate to an ongoing obligation on the part of the debtor and creditor both (as in leases), are called general unsecured claims. These typically include credit card debts, medical bills, signature loans, utility bills, and debts to friends and relatives. These debts are often modified dramatically in both Chapter 7 and Chapter 13. For example, no interest or penalties accrue while the case is pending, and in some cases, some or all of the balance is eliminated.

7. How does Chapter 13 work?

In a Chapter 13 case, the debtor must submit to the court a plan for the repayment of debts. The plan must be approved by the court to become effective. The court prevents creditors from attempting to collect any debt directly from the debtor while the case is pending. If the court approves the debtor’s plan, the protection from creditors will remain in effect so long as the debtor complies with the plan terms or until the plan is completed. While the plan is in effect, the debtor must make regular payments to a person called the Chapter 13 Trustee, who disburses them to creditors as called for in the plan. Upon completion of the payments, the debtor is discharged from liability for the remainder of debt owed. This means that creditors are prevented from attempting to collect their claims, even if they have not been paid in full.

8. How is Chapter 13 different from Chapter 7?

Under Chapter 7, the debtor must relinquish to a Chapter 7 Trustee certain assets (called “non-exempt assets”) and receives a Chapter 7 discharge, which releases the debtor from liability for most debts. Under Chapter 13, the debtor may keep all assets but must make payments to the Chapter 13 Trustee for 3 to 5 years (in general – under some circumstances the term can be shorter than 3 years). Upon completion of these payments, the debtor receives a Chapter 13 discharge which relieves the debtor from liability on most remaining debt.

9. When is Chapter 13 preferable to Chapter 7?

Chapter 13 is usually preferable for debtors who: (1) want to eliminate and strip off their second mortgage or HELOC; (2) are substantially behind in mortgage installment payments but who wish to keep their homes, (3) want to repay all or most unsecured debt (and have the income with which to do so) but need protection from their creditors while they do, or who want to prevent the further accrual of interest and penalties on their debt while they repay it; (4) want to keep nonexempt property or exempt property securing debts, either of which would be lost in a Chapter 7 case; (5) are not eligible for a discharge under Chapter 7; or (6) have substantial debts that are not dischargeable under Chapter 7 but are dischargeable under Chapter 13.

10. How does Chapter 13 differ from a private debt consolidation service?

The U. S. Bankruptcy Court, which administers Chapter 13 cases, has powers to aid the debtor that private debt consolidation services do not. For example, the Court has the power to prohibit creditors from attaching or foreclosing on the debtor’s property, the power to force unsecured creditors to accept a Chapter 13 plan that pays only a portion of their claims, the power to void certain liens on property, and the power to discharge a debtor from unpaid portions of debts. Private debt consolidation services have none of these powers.

11. What is a Chapter 13 discharge?

A Chapter 13 discharge is a court order releasing a debtor from all dischargeable debts and ordering creditors not to collect them from the debtor. There are two types of Chapter 13 discharges: (1) a successful plan discharge that is granted to a debtor who completes all payments called for in the plan, and (2) an unsuccessful plan discharge that is granted to a debtor who is unable to complete the payments called for in the plan due to circumstances for which the debtor should not be held accountable. A successful plan discharge is broader and discharges more debts than either an unsuccessful plan discharge or a Chapter 7 discharge.

12. What types of debts are not dischargeable under Chapter 13?

The Chapter 13 discharge granted upon the completion of all payments required in the plan does not discharge a debtor from certain debts, including:

a) debts that were paid outside of the plan and not covered in the plan;
b) debts for alimony, maintenance, or support;
c) debts for death or personal injury caused by the debtor’s operation of a motor vehicle while unlawfully intoxicated;
d) debts for restitution included in a criminal sentence imposed on the debtor;
e) installment debts whose last payment is due after the completion of the plan;
f) most student loan debt; and
g) debts incurred while the plan was in effect that were not paid under the plan.

The Chapter 13 discharge granted when a debtor is unable to complete the payments under a plan due to circumstances for which the debtor should not be held accountable, does not discharge the debtor from:

a) secured debts (for example, debts secured by mortgages or liens);
b) debts that were paid outside of the plan and not covered in the plan;
c) installment debts whose last payment is due after the completion of the plan;
d) debts incurred while the plan was in effect that were not paid under the plan; and
e) the types of debts that are not dischargeable under Chapter 7.

13. What is a Chapter 13 plan?

It is a written plan presented to the bankruptcy court by a debtor that states how much money or other property the debtor will pay to the Chapter 13 trustee, how long the debtor’s payments to the Chapter 13 trustee will continue, how much will be paid on each of the debtor’s debts, which debts will be paid outside of the plan, and certain other technical matters.

14. What is a Chapter 13 Trustee?

A Chapter 13 trustee is an officer of the court, appointed to collect payments from the debtor, make payments to creditors in the manner set forth in the debtor’s plan, and administers the debtor’s Chapter 13 case. The Chapter 13 trustee is also required to perform certain other duties, and the debtor is required to cooperate with the Chapter 13 trustee.

15. What debts may be paid under a Chapter 13 plan?

Any debts whatsoever, whether they are secured or unsecured. Even debts that are non-dischargeable, such as debts for taxes, alimony or child support or student loans, may be paid under a Chapter 13 plan.

16. Must all debts be paid in full under a Chapter 13 plan?

No. While certain debts, such as taxes and fully-secured debts, must be paid in full under a Chapter 13 plan (with rare exceptions), only an amount that the debtor can reasonably afford must be paid on certain other debts. The unpaid balance of most debts which are not paid in full under a Chapter 13 plan is discharged upon completion of the plan.

17. Must all unsecured creditors be treated alike under a Chapter 13 plan?

In general, yes. However, if there is a reasonable basis for doing so, unsecured debts can be divided into separate classes and treated differently. It may be possible, therefore, to pay certain unsecured creditors in full, while paying little or nothing to others.

18. How much money must be paid to the Chapter 13 trustee under a Chapter 13 plan?

Usually all of the disposable income of the debtor and the debtor’s spouse (even if it is not a joint case) for a three-year period must be paid to the Chapter 13 trustee. Disposable income is income received by the debtor and his or her spouse that is not reasonably necessary for the support of the debtor and the debtor’s dependents.

19. Who determines what is “reasonably necessary” for the support of the debtor and the debtor’s dependents?

The debtor must submit a budget to the court at the beginning of the case disclosing his or her monthly living expenses. The trustee will review the budget to determine whether or not the expenses set forth are reasonable. If the Trustee believes the expenses are unreasonable and the debtor disagrees, the debtor may have the matter heard before a judge who ultimately must decide on the reasonableness of the expense. However, courts normally give great weight to the opinions of the Chapter 13 Trustee.

20. When must the debtor begin making payments to the Chapter 13 Trustee and how must they be made?

The debtor must begin making payments to the Chapter 13 Trustee within 30 days after the debtor’s plan is filed with the court, which generally is at the same time the case is filed with the court. The payments must be made regularly, usually on a monthly basis.

21. How long does the Chapter 13 plan last?

A Chapter 13 plan must last for a minimum of three years, unless all debts can be paid off in full in less time. A Chapter 13 plan cannot last for more than five years. Between these two limits, a plan lasts as long as it takes for all claims to be paid in accordance with the plan terms. However, the Trustee only pays claims of creditors (or other party) who file a “proof of claim” form with the court. A creditor who fails to do so will not receive disbursements from the Trustee, but will be subject to discharge at the completion of the case. If this happens, the plan will last for less time than the debtor may have anticipated when proposing the plan. If a debtor’s income exceeds the state’s median income, the plan must last five years and any excess disposable income over living expenses must be paid to the trustee.

22. Is it necessary for all creditors to approve a Chapter 13 plan?

No. The Chapter 13 plan must be approved by the court, but not by the creditors. However, the court cannot approve a plan unless priority claims are to be paid in full, and secured creditors are treated in one of the prescribed ways permitted under the Bankruptcy Code. Unsecured creditors are required to receive under a Chapter 13 plan at least as much as they would have had the debtor chosen to file Chapter 7 (although in deferred monthly payments, rather than in lump sum) and can object if they believe the plan does not provide such treatment.

23. How are secured creditors dealt with under Chapter 13?

There are five permitted ways of treating secured creditors in a Chapter 13 plan: (1) for long-term debts (meaning longer than the term of the plan), the debtor may provide that the creditor will retain its lien and that the plan will cure any arrearages that accumulated before the case was filed, while the debtor makes regular post-petition (after the filing of Chapter 13) payments directly to the creditor outside of the plan; (2) the creditor may retain its lien and be paid the full amount of its secured claim (usually with interest) through the plan; (3) the debtor may surrender the collateral to the creditor and treat any remaining claim after the collateral is sold and the proceeds applied to the creditor’s claim as an unsecured debt; (4) in limited circumstances, the creditor may be paid or dealt with outside the plan; or (5) the creditor may voluntarily accept some other treatment in the proposed plan. Note, however, in some cases where a debtor has owned the vehicle more than 910 days a creditor has a secured claim only to the extent of the value of its collateral. Thus, a creditor with a lien on an automobile worth $5,000.00 has a secured claim for only $5,000.00, even if the amount owed to that creditor is $8,000.00. The other $3,000.00 is unsecured because there is no value left in the automobile to support the lien. The debtor may be able to discharge the unsecured portion of the claim, with little or no payment depending on the circumstances of the case, and still keep the vehicle.

24. What happens if a debt is co-signed or guaranteed by another person?

Generally, if a consumer debt is cosigned by a person other than the debtor (or his or her spouse in a joint case), the co-signer or guarantor is protected from the creditor just as if he or she was also filing Chapter 13. Therefore, the creditor is unable to collect any portion of the debt from the co-signer or guarantor while the Chapter 13 case is pending. Under certain circumstances however, the creditor may be able to obtain permission from the court to pursue its claim against such parties. This would be true, for example, if the debt is not being paid in full under the plan, or if the debt is not a consumer debt. If it’s not being fully paid, the court may allow the creditor to collect the unpaid balance from the co-signer or guarantor. If it is a commercial debt, the court may allow the creditor to collect the entire debt from the co-debtor or guarantor.

25. Who can file a Chapter 13 case?

Any individual or married couple may file under Chapter 13 if all of the following conditions apply. The debtor must:

a. reside in, do business in, or own property in the United States; and
b. have regular income; and
c. have unsecured debts of less than $336,900.00 [this amount is subject to periodic adjustment]; and
d. have secured debts of less than $1,010,650.00 [this amount is subject to periodic adjustment]; and
e. not be a stockbroker or a commodity broker; and
f. have not been a debtor in another bankruptcy case that was dismissed within the last 180 days on certain technical grounds.

Corporations, partnerships, trusts, estates, limited liability partnerships and companies and other business entities are not eligible to file Chapter 13. Individuals or married couples meeting the above requirements may file under Chapter 13 even if he, she or they have recently received a discharge in another bankruptcy proceeding. Married couples may file Chapter 13 only if their combined debt falls within the foregoing monetary limits, but only one spouse needs to have regular income.

26. Can a married person file without his or her spouse?

Yes. However, there are often compelling reasons to file jointly. For example, if both spouses are liable for a significant debt or debts which will not be paid in full through the plan, both should file to obtain protection from the creditor and a discharge. Also, the attorney may wish to combine exemptions available to both spouses when formulating the plan.

27. Can a self-employed person file Chapter 13?

Yes. A self-employed person meeting the eligibility requirements may file Chapter 13. And, a debtor engaged in business is permitted to continue to operate the business during the Chapter 13 case.

28. Can a Chapter 7 case be converted to Chapter 13?

Yes. A pending Chapter 7 case may be converted to Chapter 13 at any time at the request of the debtor, if the case has not been previously converted to Chapter 7 from Chapter 13.

29. Where is a bankruptcy case filed?

A Chapter 7 or 13 case is filed in the United States Bankruptcy Court in the district where the debtor has lived or maintained a principal place of business for the greatest portion of the last 180 days. The bankruptcy court is a unit of the federal district court.

30. What is the filing fee in a bankruptcy case?

There is a $274.00 filing fee charged when the case is filed under Chapter 13. The filing fee for a Chapter 7 is $299.00.

31. Are there any administrative fees in a Chapter 13 case?

Yes. The Chapter 13 Trustee’s office is permitted to assess a fee of up to 10% on all payments made under the plan. Currently, the Trustee’s fees range from 5.5% - 10%. As an example, if a debtor pays $100.00 per month into the plan, the Trustee could take up to $10.00 to cover his office’s costs and fees. In addition, attorney’s fees are typically awarded by the Court and usually range from $3,300.00 to $3,600.00 some of which is paid by the debtor prior to filing with the remainder paid through the Chapter 13 Plan by the Trustee. The fee charged by an attorney for representing a debtor in a Chapter 13 case must be reviewed and approved by the bankruptcy court. This rule is followed whether the fee is paid to the attorney prior to or after the filing of the case, and whether it is paid to the attorney directly by the debtor or by the Chapter 13 trustee. The court will approve only a fee that it finds to be reasonable.

32. Are you forced to give up any property if you file Chapter 13?

No. The general rule in Chapter 13 is that you are permitted to keep all of your assets. However, if you wish to give up some property (for example, if you want to surrender a vehicle and treat any remaining claim as unsecured) you are permitted to do so.

33. What happens if there is a foreclosure or other lawsuit already pending against me?

When any bankruptcy case (i.e., under any Chapter of the Bankruptcy Code) is filed, an order is immediately issued by the bankruptcy court which stops any pending lawsuits, attachments, garnishments, foreclosures, and other actions by creditors against the debtor or the debtor’s property from proceeding. This order is called the “Automatic Stay”. In Chapter 13, that protection remains in effect during the entire course of the Chapter 13 case, unless the court orders otherwise. If the debtor is later granted a Chapter 13 discharge, creditors will then be prohibited from collecting the discharged debts from the debtor after the case is closed.

34. Can I file Chapter 13 if my debts are being administered by consumer credit counseling or other private financial counselor?

Yes. A financial counselor has no legal right to prevent a person from filing any type of bankruptcy case, including a Chapter 13 case.

35. Will filing bankruptcy affect my credit rating?

Yes. Under Federal law, credit bureaus may report the fact that you have filed Chapter 13 on your credit report for 10 years from the date of filing of a Chapter 7 or 13, or 7 years from the date of the completion of your Chapter 13 Plan, whichever is longer. This may diminish your ability to obtain credit at reasonable rates at least until you can rebuild your credit. However, credit may still be available, particularly secured debt, so you are encouraged to seek future credit after your case is completed if needed to help in the rebuilding process.

36. Will my bankruptcy be published?

Most widely read newspapers do not carry bankruptcy notices, but bankruptcy filings are public records so someone wishing to find out whether you have filed will be able to obtain that information.

37. Will my employer find out that I have filed bankruptcy?

Not necessarily unless they are also a creditor and you owe them money.

38. Can my employer fire me for filing bankruptcy?

No. It is illegal for employers to discriminate against a person because that person has filed for bankruptcy. It is also illegal for local, state, or federal governmental agencies to discriminate against a person as to licenses, permits, and other matters because that person has filed bankruptcy.

39. Will I have to appear in court if I file bankruptcy?

In most cases you will not. You will have to attend a meeting known as the meeting of creditors which is held in a meeting room in downtown Tampa, but you usually do not have to appear in a formal court hearing. Although creditors are invited to attend the creditors meeting, few usually do. In many cases, no one is present other than a representative from the Trustee’s office, your attorney and you. This meeting generally takes place 4 to 5 weeks after your case is filed. Only if difficult or unusual circumstances arise during the course of a case are additional court appearances necessary.

40. What happens if the court does not approve the Chapter 13 plan?

If the court will not approve the plan proposed by a debtor, the debtor may modify the plan and seek court approval of the modified plan. A debtor who does not wish to modify a proposed plan may either convert the case to Chapter 7 or dismiss the case.

41. How are the claims of unsecured creditors handled under Chapter 13?

Unsecured creditors cannot receive any distributions from the Chapter 13 Trustee unless they file a document with the court known as a “Proof of Claim”. This document must be filed within 90 days after the first date set for the meeting of creditors. If it is not, the debtor may object to it, and have the court declare it “disallowed” (unapproved and therefore not eligible to receive payment) as late. Unsecured creditors who fail to file claims or whose claims are disallowed receive no distributions from the Chapter 13 Trustee, and upon completion of the plan their claims will be discharged. If necessary or desired, the debtor may file a claim on behalf of a creditor. If a claim filed by a creditor is incorrect as to amount or otherwise, the debtor may file an objection to it and request a hearing before the court. When the claims have been approved by the court, the Chapter 13 Trustee begins paying unsecured creditors as provided for in the Chapter 13 plan.

42. What if I am temporarily unable to make the Chapter 13 payments?

If the debtor is temporarily out of work, injured, or otherwise unable to make the payments required under a Chapter 13 plan, the plan can sometimes be modified to enable the debtor to resume the payments when he or she is able to do so. However, it is important to contact your attorney as soon as this situation arises. Courts are less willing to entertain such requests after the fact. If it appears that the debtor’s inability to make the required payments will continue indefinitely or for an extended period, the case may be dismissed or converted to Chapter 7.

43. What if I incur new debts or need credit during a Chapter 13 case?

Upon confirmation of the Chapter 13 plan, the court issues an order prohibiting the debtor from obtaining any credit over $500.00 without prior court approval. Only two types of credit obligations or debts incurred after the filing of the case may be included in a Chapter 13 plan. These are: (1) debts for taxes that become payable while the case is pending, and (2) consumer debts arising after the filing of the case that are for property or services necessary for the debtor’s performance under the plan and that are approved in advance by the Chapter 13 Trustee (and, by virtue of the aforementioned order, the court). The incurrence of regular debts, such as debts for telephone service and utilities, do not require prior approval.

44. What happens if I discover after the case is filed that I forgot to include a creditor?

Pre-petition debts (those that were owed prior to the filing of your case) can be added after the case is filed. Your attorney must prepare an amended schedule setting forth the missing creditor or creditors, and a $24.00 filing fee is charged each time creditors are added after the case is filed. If the addition of the new creditor or creditors effects the Chapter 13 plan in a substantial way, then it may also be necessary to seek court approval to modify the plan.

45. What should I do if I move while the case is pending?

Contact your attorney and provide him or her with the new address and telephone number. Your attorney will then prepare a Notice of Change of Address form and file it with the court and provide the Trustee with a copy. It is important to do this since most communications in a bankruptcy case are by mail, and if the debtor fails to receive an order of the court or a notice from the Trustee because of an incorrect address, the case may potentially be dismissed.

46. What if I decide to discontinue the Chapter 13 case?

The debtor has the right to either dismiss a Chapter 13 case or convert it to Chapter 7 provided it is done in good faith. A debtor does not have the right to dismiss a Chapter 7. However, important rights and/or assets can be lost if this is done without appropriate review and planning. Therefore, it is important that you consult with your attorney prior to taking these actions.

47. What happens if I am unable to complete the Chapter 13 payments?

A debtor who is unable to complete the Chapter 13 payments has three options: (1) dismiss the case; (2) convert the case to Chapter 7; or (3) if the debtor is unable to complete the payments due to circumstances for which he, or she or they should not be held accountable, close the case and obtain the “hardship” discharge.

48. What is the role of my attorney in a Chapter 13 case?

a) The debtor’s attorney performs the following functions in a typical Chapter 13 case:
b) Examining the debtor’s financial situation, determining whether Chapter 13 is a feasible alternative, and if so, whether a single or a joint case should be filed;
c) Developing a budget which will be reasonable to the debtor and acceptable to the Trustee and the court;
d) Examining the nature, extent and validity of any liens or security interests, and taking appropriate steps to avoid or treat such liens in a manner beneficial to the debtor;
e) Devising a Chapter 13 plan that meets the needs of the debtor and is acceptable to the Trustee and the court;
f) Preparing the Chapter 13 Petition, Schedules, Statement of Financial Affairs, required case input documents, pleadings, motions and other Chapter 13 documents;
g) Filing the Chapter 13 documents with the court;
h) Representing the debtor at the meeting of creditors, the confirmation hearing, and any other court hearings required in the case;
i) Assisting the debtor in obtaining court approval of a Chapter 13 plan;
j) Examining the claims of creditors filed in the case, filing objections to improper claims, and attending court hearings related thereto;
k) Assisting the debtor in overcoming any legal obstacles that may arise during the course of the case; and
l) Assisting the debtor in obtaining a discharge upon the completion or termination of the plan.

49. What does, “relief from stay” mean?

The “stay” or “automatic stay” is the court order issued at the beginning of a bankruptcy case which prevents creditors from attempting to collect a debt from the debtor while the case is pending. If the debtor does not comply with the terms of a confirmed Chapter 13 plan, by, for example, failing to make future mortgage payments on a regular basis while the Chapter 13 plan is proceeding, the creditor may request permission from the court to proceed with its normal collection remedies. This request is known as a request for relief from stay. The court will normally grant such a request unless the debtor is able to bring the post-petition (after the filing of Chapter 13) installments current.

50. How will I know how much the Trustee has paid to my creditors, and how much remains to be paid?

The Chapter 13 Trustee maintains a website where you can see what payments have been made to whom. This report sets forth all funds received by the Trustee and all checks which have been issued to creditors and other parties-in-interest. The report contains additional information including a summary of how much money remains to be paid each creditor and in total.